- Haas School of Business
Berkeley CA 94720-1900 - 1 510 642 6609
Andrew Rose
University of California, Berkeley, Haas School of Business, Faculty Member
Currency and banking crises are potholes on the road to financial liberalization. It is relatively rare for them to cause a vehicle to break an axle-to bring the process of growth and liberalization to an utter and extended halt-but the... more
Currency and banking crises are potholes on the road to financial liberalization. It is relatively rare for them to cause a vehicle to break an axle-to bring the process of growth and liberalization to an utter and extended halt-but the flats they cause can result in significant losses of time and output and set back the process of policy reform.
Abstract This paper reviews the recent literature that quantitatively assesses the effect on international trade of membership in the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT).... more
Abstract This paper reviews the recent literature that quantitatively assesses the effect on international trade of membership in the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). In my 2004a paper, I show that a straightforward look at the data does not find a strong effect of GATT/WTO membership on bilateral trade.
In this paper, I develop and apply a simple methodology to estimate the expected (intertemporal) marginal rate of substitution (EMRS). The EMRS is an economic variable of considerable interest. More importantly, when different series for... more
In this paper, I develop and apply a simple methodology to estimate the expected (intertemporal) marginal rate of substitution (EMRS). The EMRS is an economic variable of considerable interest. More importantly, when different series for the EMRS are estimated for different markets (such as the New York and Toronto stock exchanges), comparing these estimates provides a natural yet powerful test for integration between markets. The method is novel in that it exploits information in asset-idiosyncratic shocks.
ABSTRACT The effects of Regional Trade Agreements (RTAs) are disputed. In this paper, we assess these effects using capital market data and an event-study approach, using a daily data set covering a thousand announcements spanning over... more
ABSTRACT The effects of Regional Trade Agreements (RTAs) are disputed. In this paper, we assess these effects using capital market data and an event-study approach, using a daily data set covering a thousand announcements spanning over eighty economies and a hundred RTAs over twenty recent years. We measure the effects of news concerning RTAs on the returns of national stock markets, adjusted for international stock market movements.
ABSTRACT Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of... more
ABSTRACT Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization.
ABSTRACT This paper develops a simple but general methodology to estimate the expected intertemporal marginal rate of substitution or" EMRS", using only data on asset prices and returns. Our empirical strategy is general, and allows the... more
ABSTRACT This paper develops a simple but general methodology to estimate the expected intertemporal marginal rate of substitution or" EMRS", using only data on asset prices and returns. Our empirical strategy is general, and allows the EMRS to vary arbitrarily over time. A novel feature of our technique is that it relies upon exploiting idiosyncratic risk, since theory dictates that idiosyncratic shocks earn the EMRS.
Three Waves of Currency Crises during the 1990s Currency crises are among the most dramatic of all economic events. Interest rates rise to exorbitant levels and billions change hands on the markets while central bank governors and finance... more
Three Waves of Currency Crises during the 1990s Currency crises are among the most dramatic of all economic events. Interest rates rise to exorbitant levels and billions change hands on the markets while central bank governors and finance ministers work their cell phones to head off the panic. At the time, speculative attacks–I use the expression synonymously with currency crises–seem an irrational phenomena.
Much research on international trade patterns focuses on deep primitive causes of trade, such as differences in national factor endowments, preferences, or technologies. In much of my recent research in the area, I examine less... more
Much research on international trade patterns focuses on deep primitive causes of trade, such as differences in national factor endowments, preferences, or technologies. In much of my recent research in the area, I examine less traditional causes of trade flows. In particular, I've tended to focus mostly on the macroeconomic determinants and consequences of trade.
Summary In this article, the gravity model of international trade was used to show that two countries with a common currency trade more. The effect is statistically significant and economically large. Two countries which use the same... more
Summary In this article, the gravity model of international trade was used to show that two countries with a common currency trade more. The effect is statistically significant and economically large. Two countries which use the same currency trade much more than comparable countries with their own currencies; the best estimate is over three times as much.
Abstract This paper develops a simple methodology to test for asset integration, and applies it within and between American stock markets. Our technique relies on estimating and comparing expected risk-free rates across assets. Expected... more
Abstract This paper develops a simple methodology to test for asset integration, and applies it within and between American stock markets. Our technique relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they must be equal across (risk-adjusted) assets in wellintegrated markets.
Abstract This short paper reviews the recent literature linking monetary union, international trade, and business cycle synchronization. I survey the literature using the quantitative technique of metaanalysis, which allows me to estimate... more
Abstract This short paper reviews the recent literature linking monetary union, international trade, and business cycle synchronization. I survey the literature using the quantitative technique of metaanalysis, which allows me to estimate the effects of EMU taking into account the entire extant literature. Twenty-six recent studies have investigated the effect of currency union on trade, using actual European data of relevance.
Abstract: This paper applies the Meese-Rogoff (1983a) methodology to the stock market. We compare the out-of-sample forecasting accuracy of various time-series and fundamentals-based models of aggregate stock prices. We stick as close as... more
Abstract: This paper applies the Meese-Rogoff (1983a) methodology to the stock market. We compare the out-of-sample forecasting accuracy of various time-series and fundamentals-based models of aggregate stock prices. We stick as close as possible to the original Meese-Rogoff sample and methodology.
We develop a procedure to rank-order objects using censored panel data sets. We illustrate this by ranking countries and commodities using disaggregated American import data and find evidence that countries and commodities can be ranked.... more
We develop a procedure to rank-order objects using censored panel data sets. We illustrate this by ranking countries and commodities using disaggregated American import data and find evidence that countries and commodities can be ranked. Countries habitually begin to export goods to the United States according to an ordering; goods are also exported in order. We estimate these orderings using a methodology, that takes account of the fact that most goods are not exported by most countries in our sample.
Abstract: We compare the duration and performance of different monetary regimes, especially the contrast between countries those that fix exchange rates and those that target inflation. Inflation targeting is a more durable policy; no... more
Abstract: We compare the duration and performance of different monetary regimes, especially the contrast between countries those that fix exchange rates and those that target inflation. Inflation targeting is a more durable policy; no country has yet been forced to abandon an inflation target, while many have abandoned fixed exchange rates.
Abstract Twenty-four recent studies have investigated the effect of currency union on trade, resulting in 443 point estimates of the effect. This paper is a quantitative attempt to summarize the current state of debate; meta-analysis is... more
Abstract Twenty-four recent studies have investigated the effect of currency union on trade, resulting in 443 point estimates of the effect. This paper is a quantitative attempt to summarize the current state of debate; meta-analysis is used to combine the disparate estimates.
The enormity of the current financial collapse raises the question whether the crisis could have been predicted. This is the second of two Economic Letters on the topic. This Letter examines research suggesting that early warning models... more
The enormity of the current financial collapse raises the question whether the crisis could have been predicted. This is the second of two Economic Letters on the topic. This Letter examines research suggesting that early warning models would not have accurately predicted the relative severity of the current crisis across countries, casting doubt on the ability of such models to forecast similar crises in the future.
The 1992 and 1993 crises in the European Monetary System redirected attention toward proposals for regulating the foreign exchange market. Academics (including two authors of this paper) argued for a Tobin tax on foreign exchange... more
The 1992 and 1993 crises in the European Monetary System redirected attention toward proposals for regulating the foreign exchange market. Academics (including two authors of this paper) argued for a Tobin tax on foreign exchange transactions or the imposition of non-interest-bearing deposit requirements on banks with open positions in foreign exchange as a way of smoothing the transition to European monetary union (EMU)(see Eichengreen and Wyplosz 1993).
Abstract This paper examines the macroeconomic impact of tariffs. The effects of unilateral tariff changes are reviewed in a variety of theoretical models. Three different sets of data are consistent with the hypothesis that tariff rates... more
Abstract This paper examines the macroeconomic impact of tariffs. The effects of unilateral tariff changes are reviewed in a variety of theoretical models. Three different sets of data are consistent with the hypothesis that tariff rates have no significant effect on a system consisting of the real exchange rate, the real trade balance, and real output (both foreign and domestic).
One of the luxuries of academic life is the ability to ignore problems that cannot be easily solved. Since I get to choose the focus of my research, I try to choose interesting and important problems, but problems that I can handle. This... more
One of the luxuries of academic life is the ability to ignore problems that cannot be easily solved. Since I get to choose the focus of my research, I try to choose interesting and important problems, but problems that I can handle. This is a luxury that central bankers do not have; some decisions have to be made whether they are easy to make or not. Which brings me to the topic of the session.
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that,... more
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that, contrary to much current commentary, there is no downward trend in synchronisation.
Abstract: This paper analyzes the causes of the 2008-2009 global financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. The analysis is conducted on a cross-section of 85 countries. It... more
Abstract: This paper analyzes the causes of the 2008-2009 global financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. The analysis is conducted on a cross-section of 85 countries. It is found that more financially integrated countries do not seem to have suffered more during the most serious macroeconomic crisis in decades.
We include a myriad of potential causal variables, addressing most of the causes advanced in the voluminous literature on the origins of the global financial crisis. We condition on size throughout our analysis because it has been... more
We include a myriad of potential causal variables, addressing most of the causes advanced in the voluminous literature on the origins of the global financial crisis. We condition on size throughout our analysis because it has been generally observed that smaller countries have fared poorly in the crisis. We also condition on income, as rich countries may have advantages in responding to crises.
Why should countries offer to host costly 'mega-events' such as the Olympic Games? We show that hosting a mega-event increases exports. This effect is statistically robust, permanent and large; trade is over 20% higher for host countries.... more
Why should countries offer to host costly 'mega-events' such as the Olympic Games? We show that hosting a mega-event increases exports. This effect is statistically robust, permanent and large; trade is over 20% higher for host countries. Interestingly, unsuccessful bids to host the Olympics have a similar impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event.
We examine the role of noneconomic partnerships in promoting international economic exchange. Since far-sighted countries are more willing to join costly international partnerships such as environmental treaties, environmental engagement... more
We examine the role of noneconomic partnerships in promoting international economic exchange. Since far-sighted countries are more willing to join costly international partnerships such as environmental treaties, environmental engagement tends to encourage international lending. Countries with such noneconomic partnerships also find it easier to engage in economic exchanges since they face the possibility that debt default might also spill over to hinder their noneconomic relationships.
The 2008 financial crisis is sometimes characterised as one where financial difficulties in the US spread to the rest of the world. But is there clear evidence of such international contagion? This column reports research indicating that... more
The 2008 financial crisis is sometimes characterised as one where financial difficulties in the US spread to the rest of the world. But is there clear evidence of such international contagion? This column reports research indicating that neither financial nor trade linkages to the US help explain the cross-country incidence of the crisis. If anything, countries more exposed to the US seem to have fared better.
4. Conclusion What are the implications for Chinese economic policy and performance? The experience of other countries gives little reason to think that an exit up will have seriously adverse consequences for the economy. But it points to... more
4. Conclusion What are the implications for Chinese economic policy and performance? The experience of other countries gives little reason to think that an exit up will have seriously adverse consequences for the economy. But it points to the possibility of economic growth slowing at least marginally. If the authorities wish to limit the risk of an excessive slowdown, they can maintain the level of public spending and redouble their efforts to foster the growth of private consumption.
Discussion Papers 1994. DP1124, The Sharing Hypothesis for Specific Human Capital. Publication Date: December 1994. Authors: Margaret Stevens. Programme Areas: Human Resources. DP1101, Quitting Externalities, Employment Cyclicality and... more
Discussion Papers 1994. DP1124, The Sharing Hypothesis for Specific Human Capital. Publication Date: December 1994. Authors: Margaret Stevens. Programme Areas: Human Resources. DP1101, Quitting Externalities, Employment Cyclicality and Firing Costs.
Abstract: This paper studies the characteristics of departures from monetary unions. During the post-war period, almost seventy distinct countries or territories have left a currency union, while over sixty have remained continuously in... more
Abstract: This paper studies the characteristics of departures from monetary unions. During the post-war period, almost seventy distinct countries or territories have left a currency union, while over sixty have remained continuously in currency unions. I compare countries leaving currency unions to those remaining within them, and find that leavers tend to be larger, richer, and more democratic; they also tend to have higher inflation. However, there are typically no sharp macroeconomic movements before, during, or after exits.
Executive Summary Currency crises tend to be regional. Since macroeconomic and financial phenomena are not regional, these phenomena are unimportant in understanding why crises spread. But international trade is regional, as countries... more
Executive Summary Currency crises tend to be regional. Since macroeconomic and financial phenomena are not regional, these phenomena are unimportant in understanding why crises spread. But international trade is regional, as countries tend to trade with their neighbors. This suggests that trade links are important in understanding how currency crises spread, above and beyond any macroeconomic phenomena. We provide empirical support for these hypotheses.
During the global crisis governments made substantial interventions in financial markets, particularly in the banking sector. This column argues that one unintended consequence of bank nationalisations has been to reduce cross-border... more
During the global crisis governments made substantial interventions in financial markets, particularly in the banking sector. This column argues that one unintended consequence of bank nationalisations has been to reduce cross-border lending. After nationalisation, foreign banks reduced British lending as a share of total lending by about 11 percentage points and increased interest rates to UK residents by 70 basis points. This suggests foreign nationalised banks have engaged in financial protectionism.
This paper provides a framework for understanding the risks to borrowers and lenders in international capital flows. To isolate the features that are intrinsically international, we begin by analyzing the financial system in a purely... more
This paper provides a framework for understanding the risks to borrowers and lenders in international capital flows. To isolate the features that are intrinsically international, we begin by analyzing the financial system in a purely domestic context. This allows us to focus on the extra effects associated with international activity.
I provide a framework for understanding the global financial architecture as an equilibrium outcome of the risk sharing between countries with different levels of financial development. The country that has the most developed financial... more
I provide a framework for understanding the global financial architecture as an equilibrium outcome of the risk sharing between countries with different levels of financial development. The country that has the most developed financial sector takes on a larger proportion of global fundamental and financial risk because its financial intermediaries are better able to deal with funding problems following negative shocks. This asymmetric risk sharing has real consequences.
Abstract This paper models the causes of the 2008 financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. Our analysis is conducted on a cross-section of 107 countries; we focus on... more
Abstract This paper models the causes of the 2008 financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. Our analysis is conducted on a cross-section of 107 countries; we focus on national causes and consequences of the crisis, ignoring crosscountry “contagion” effects. Our model of the incidence of the crisis combines 2008 changes in real GDP, the stock market, country credit ratings, and the exchange rate.
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of... more
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of Directors is charged with the responsibility of ensuring that the work of the NBER is carried on in strict conformity with this object.
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of... more
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of Directors is charged with the responsibility of ensuring that the work of the NBER is carried on in strict conformity with this object.
Prospects for international environmental cooperation often seem dim, as agreement must hew to the lowest common denominator. This column identifies economic gains from environmental commitments via reputational spillovers and their... more
Prospects for international environmental cooperation often seem dim, as agreement must hew to the lowest common denominator. This column identifies economic gains from environmental commitments via reputational spillovers and their impact on capital flows. The evidence suggests that nations have more to gain from cooperation than they may realise.
ABSTRACT If one ranks cities by population, the rank of a city is inversely related to its size, a well-documented phenomenon known as Zipf's Law. Further, the growth rate of a city's population is uncorrelated with its size, another... more
ABSTRACT If one ranks cities by population, the rank of a city is inversely related to its size, a well-documented phenomenon known as Zipf's Law. Further, the growth rate of a city's population is uncorrelated with its size, another well-known characteristic known as Gibrat's Law. In this paper, I show that both characteristics are true of countries as well as cities; the size distributions of cities and countries are similar.
Abstract One reason why countries service their external debts is the fear that default might lead to shrinkage of international trade. If so, then creditors should systematically lend more to countries with which they share closer trade... more
Abstract One reason why countries service their external debts is the fear that default might lead to shrinkage of international trade. If so, then creditors should systematically lend more to countries with which they share closer trade links. We develop a simple theoretical model to capture this intuition, then test and corroborate this idea. Keywords: panel, bilateral, bank, loan, sovereign risk
This paper develops a simple new methodology to test for asset integration and applies it to the Japanese stock market as represented by the Tokyo Stock Exchange (TSE). The technique is tightly based on a general intertemporal... more
This paper develops a simple new methodology to test for asset integration and applies it to the Japanese stock market as represented by the Tokyo Stock Exchange (TSE). The technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they are equal across (risk-adjusted) assets.
Abstract This paper develops a simple new methodology to test for asset integration and applies it to the Japanese stock market. The technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and... more
Abstract This paper develops a simple new methodology to test for asset integration and applies it to the Japanese stock market. The technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they are equal across (risk-adjusted) assets.
Abstract This short paper reviews the recent literature linking monetary union, international trade, and business cycle synchronization. I survey the literature using the quantitative technique of metaanalysis, which allows me to estimate... more
Abstract This short paper reviews the recent literature linking monetary union, international trade, and business cycle synchronization. I survey the literature using the quantitative technique of metaanalysis, which allows me to estimate the effects of EMU taking into account the entire extant literature. Twenty-six recent studies have investigated the effect of currency union on trade, using actual European data of relevance.
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of... more
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of Directors is charged with the responsibility of ensuring that the work of the NBER is carried on in strict conformity with this object.
Abstract Conventional wisdom holds that protectionism is counter-cyclic; tariffs, quotas and the like grow during recessions. While that may have been a valid description of the data before the First World War, it is now inaccurate. Since... more
Abstract Conventional wisdom holds that protectionism is counter-cyclic; tariffs, quotas and the like grow during recessions. While that may have been a valid description of the data before the First World War, it is now inaccurate. Since the Second World War, protectionism has not been counter-cyclic; tariffs and non-tariff barriers simply do not rise systematically during downturns.
This volume contains papers from the thirteenth annual East Asian Seminar on Economics, which took place on June 20–22 in Melbourne, Australia. We are grateful to the local sponsor, the Australian Productivity Commission, an appropriate... more
This volume contains papers from the thirteenth annual East Asian Seminar on Economics, which took place on June 20–22 in Melbourne, Australia. We are grateful to the local sponsor, the Australian Productivity Commission, an appropriate choice considering the topic of conference, productivity.
We are now in the midst of an era of financial integration, which is leading to convergence of international financial prices. Indeed, international financial flows are largely driven by discrepancies in asset prices across borders. This... more
We are now in the midst of an era of financial integration, which is leading to convergence of international financial prices. Indeed, international financial flows are largely driven by discrepancies in asset prices across borders. This would be widely seen as a welcome development if asset prices were well grounded in economic fundamentals. Part of what our analysis seeks to do is question this latter assumption, and thus the presumption that financial integration can be automatically viewed as good for economic welfare.
A világ 115 országának-köztük 21 OECD-tagország-40 évnyi adatait vizsgálva, arra a következtetésre jutottunk, hogy a hasonló állami költségvetési pozíciójú országok konjunktúraciklusai között szorosabb együttmozgás mutatható ki. Azaz, a... more
A világ 115 országának-köztük 21 OECD-tagország-40 évnyi adatait vizsgálva, arra a következtetésre jutottunk, hogy a hasonló állami költségvetési pozíciójú országok konjunktúraciklusai között szorosabb együttmozgás mutatható ki. Azaz, a fiskális konvergenciát (amelyet a költségvetési egyenleg GDP-hez viszonyt arányának konvergenciájaként definiáltunk) összehangoltabb konjunktúraciklusokkal lehet összefüggésbe hozni.
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of... more
1. The object of the NBER is to ascertain and present to the economics profession, and to the public more generally, important economic facts and their interpretation in a scientific manner without policy recommendations. The Board of Directors is charged with the responsibility of ensuring that the work of the NBER is carried on in strict conformity with this object.
Abstract We look at the exchange rate policy choices and outcomes for small rich economies. Small rich economies face significant policy challenges due to proportionately greater economic volatility than larger economies. These economies... more
Abstract We look at the exchange rate policy choices and outcomes for small rich economies. Small rich economies face significant policy challenges due to proportionately greater economic volatility than larger economies. These economies usually choose some form of fixed exchange rate regime, particularly in the very small economies where the per capita cost of independent monetary policy is relatively high.