Commitment devices, opportunity windows, and institution building in Central Asia

This paper studies the institutional reform process in Central Asia from a choice perspective. We compare institutional reform processes of Central Asian countries from 1995 to 2006 to those conducted in their neighbouring countries in Central and (South) Eastern Europe, Russia, and the Middle East. Firstly, the paper identifies contemporaneous factors responsible for the persistence of poor institutional arrangements. Secondly, we identify factors that can act as commitment devices through which institutional change can be achieved and sustained. Based on the findings, it is argued that deficiencies in the education system and preferences of individuals and politicians are responsible for the persistence of poor institutional arrangements. External factors such as real and financial openness, fixed exchange rates and non-trade related international agreements, however, provide strong commitment devices for policy makers to improve institutional arrangements in Central Asia despite poor initial conditions. Moreover, large external shocks may help to shift preferences towards more reliable institutional settings.Economic Institutions; Reforms; Central Asia

The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy

This paper studies the role of the yen/dollar exchange rate in the Bank of Japan?s monetary policy reaction function. In contrast to prior estimations of reaction functions based on the Taylor-rule, we allow for regime shifts by estimating rolling coefficients from January 1974 to March 1999. The results show a temporary impact of the exchange rate on monetary policy around 1978/79 and a persistently increasing impact of the yen/dollar exchange rate after 1986. The ris ing importance of the yen/dollar exchange rate for Japanese monetary policy is in line with increasing efforts to stabilize the yen/dollar exchange rate by foreign exchange intervention after March 1999, when the nominal interest rate reached the zero boundary. --Japan,Monetary Policy Reaction Function,Bank of Japan,Interest Rate Rules,Exchange Rates,Taylor Rule,GMM

A Role Model for China? Exchange Rate Flexibility and Monetary Policy in Japan

Few papers have tried to project how Chinese monetary policy will behave under flexible exchange rates. As Japan provides an important role model for China, this paper studies the role of the yen/dollar exchange rate for Japanese monetary policy after the shift of Japan from a fixed to a floating exchange rate regime. The econometric estimations allow for regime shifts in the impact of the exchange rate on monetary policy. The results show that the exchange rate had a substantial impact on Japanese monetary policy in periods of appreciation. This implies rising uncertainty and that repeated attempts to soften the appreciation pressure by interest rate cuts have led Japan into the liquidity trap.Yen, Yuan, Japan, China, monetary policy, exchange rate regime

The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy

This paper studies the role of the yen/dollar exchange rate in the Bank of Japan’s monetary policy reaction function. In contrast to prior estimations of reaction functions based on the Taylor-rule, we allow for regime shifts by estimating rolling coefficients from January 1974 to March 1999. The results show a temporary impact of the exchange rate on monetary policy around 1978/79 and a persistently increasing impact of the yen/dollar exchange rate after 1986. The ris ing importance of the yen/dollar exchange rate for Japanese monetary policy is in line with increasing efforts to stabilize the yen/dollar exchange rate by foreign exchange intervention after March 1999, when the nominal interest rate reached the zero boundary.Japan, Monetary Policy Reaction Function, Bank of Japan, Interest Rate Rules, Exchange Rates, Taylor Rule, GMM.

A role model for China?: exchange rate flexibility and monetary policy in Japan

Few papers have tried to project how Chinese monetary policy will behave under flexible exchange rates. As Japan provides an important role model for China, this paper studies the role of the yen/dollar exchange rate for Japanese monetary policy after the shift of Japan from a fixed to a floating exchange rate regime. The econometric estimations allow for regime shifts in the impact of the exchange rate on monetary policy. The results show that the exchange rate had a substantial impact on Japanese monetary policy in periods of appreciation. This implies rising uncertainty and that repeated attempts to soften the appreciation pressure by interest rate cuts have led Japan into the liquidity trap

Commitment devices, opportunity windows, and institution building in Central Asia

This paper studies the institutional reform process in Central Asia from 1995 to 2006. I compare the institutional reform processes of Central Asian countries to those conducted in their neighbouring countries of Central and (South) Eastern Europe, and the Middle East. The paper identifies contemporaneous factors responsible for the persistence of poor institutional arrangements. Second, the paper identifies factors that have acted as commitment devices in order to achieve and sustain institutional change over the last decade. It is argued that deficiencies in the education system, and preferences of individuals and politicians are responsible for the persistence of poor institutional arrangements. External factors such as real and financial openness, fixed exchange rates, and international agreements have provided a disciplining effect for policy makers to improve institutional arrangements in Central Asia, despite poor initial conditions. Finally, there is some evidence that large external shocks may help to shift preferences towards more reliable institutional settings