December 2001

Noritsugu Nakanishi (Kobe University)
"On the existence and efficiency of the von Neumann-Morgenstern stable set
in a n-player prisoners' dilemma"
International Journal of Game Theory
We show that there exist von Neumann-Morgenstern (vN-M) stable sets in a
n-player version of the prisoners' dilemma game with preplay negotiations in
which every player can deviate unilaterally from the currently proposed
combination of actions but can not do so jointly with other players, and
that every vN-M stable set includes at least one Pareto-efficient outcome.
The negotiation among the players is formulated as the "individual
contingent threats situation'' within the framework of the theory of social
situations due to Greenberg (1990). The method of proving the existence also
provides us with a step-by-step method of constructing the vN-M stable set.
Ichiroh Daitoh (Tohoku University)
"Environmental Protection and Urban Unemployment:
Environmental Policy Reform in a Polluted Dualistic Economy"
Review of Development Economics
This paper explores sufficient conditions for the welfare-improving
environmental policy reform in the Harris-Todaro economy. A rise in the
pollution tax rate in the urban manufacturing has spillover effects on the
two labor market distortions: the less-than-optimal manufacturing employment
and the urban unemployment. The necessary and sufficient conditions for them
to be weakened are identified. If both are weakened the welfare improves.
Otherwise, we need to develop an alternative sufficient condition. It is
shown that there exists a range of welfare-improving pollution tax rates,
and that it corresponds to the lower values of tax rate. This range may
shrink by the wage subsidy policy and the technological change toward less
pollution-intensive techniques.

September 2001

Koichi Yotsuya (Doshisha University)
"Low Growth Equilibrium Accompanied by High Levels of Educational
Japanese Economic Review
We demonstrate the low-growth trap associated with high educational
attainment in an overlapping generations model by examining the dual
positive effect of senior educated workers in leading-edge technology:
on technological progress and on young workers’ on-the-job learning.
If new technology is sufficiently productive, young workers demand
education to update technology when old, and then high technological
growth is sustained in the future. Conversely, if new technology is
unproductive, they demand education merely to improve the skills
necessary for existing technology, and then technological progress
stagnates. Nevertheless, vigorous investment in education occurs since
young workers have little hope for on-the-job learning.
Kazuo Nishimura (Kyoto University) and Koji Shimomura (Kobe University)
"Trade and indeterminacy in a dynamic general equilibrium model"
Journal of Economic Theory
This paper introduces sector-specific externalities in the Heckscher-Ohlin
two-country dynamic general equilibrium model to show that indeterminacy of
the equilibrim path in the world market can occur. Under certain conditions
in terms of factor intensities, there are multiple equilibrium paths from
the same initial distribution of capital in the world market, and the
distribution of capital in the limit differs among equilibrium paths. One
equilibrim path converges to a long-run equilibrium in which the
international ranking of factor endowment ratios differs from the initial
ranking; another equilibrium path maintains the initial ranking and
converges to another long-run equilibrium. Since the path realized is
indeterminate, so is the long-run trade pattern. Therefore, the Long-Run
Hecscher-Ohlin Preditiction is vulnerable to the introduction of
Murray C. Kemp (UNSW) and Koji Shimomura (Kobe University)
"A theory of voluntary unrequited international transfer"
Japanese Economic Review
This paper proposes a theory of voluntary unrequited international
transfers which explicitly allows for an international externality such
that the wellbeing of each country is influenced by the wellbeing of other
countries. Formulating a simple two-country and two-commodity model, this
paper shows that (a) either neither country extends aid to the other or one
country extends aid and both countries benefit from the aid, and (b) there
exists acceptable (Arrow-Debreu) economies such that neither country
extends aid to the other and there exist acceptable economies such that one
country extends aid to the other.
Makoto Yano (Keio University) and Fumio Dei (Kobe University)
"Trade, Vertical Production Chain, and Competition Policy"
Review of International Economics
In this study, we build a trade model that renders tractable the process in which
imperfect competition in a country's downstream sector affects the rest of the world
through international trade. For this purpose, we view internationally-traded goods
as middle products in the vertical chain of production, in which middle products are
produced upstream and transformed into final consumption goods downstream.
Using that model, we demonstrate that suppression of competition in a country's
downstream sector may serve as a beggar-thy-neighbor policy, increasing that country's
own utility while reducing that of its trading partner countries.
Eiji Fujii (Otaru University of Commerce)
"Exchange Rate and Price Adjustments in the Aftermath of the Asian Crisis"
International Journal of Finance and Economics
This study investigates the behavioral dynamics of the real exchange rates
of five East Asian economies - Indonesia, Korea, Philippines, Singapore and
Thailand - in the aftermath of the recent currency crisis. The results of
cointegration analyses suggest that, despite the turbulent exchange rate
movements during the crisis, the long-run purchasing power parity has
remained to dictate the exchange rate and price relationship for all but
Indonesia. The effects on the short-run dynamics are not unanimous, and
there are indications of structural changes for selected countries, namely
Korea and Thailand. Further, using impulse responses, we find that the speed
of real exchange rate mean reversion is barely affected by the crisis,
except for the Korean won. Overall, the empirical results suggest that the
effects of the Asian crisis can generally be regarded as a temporary
deviation rather than a fundamental shift in the real exchange rate

April 2001

Murray C. Kemp (UNSW) and Koji Shimomura(Kobe University)
"The Sonnenschein-Debreu-Mantel Proposition and the Theory of International Trade"
Review of International Economics
Much of the comparative statics of trade theory rests on the unrealistic
assumption that in each trading country all households are alike or behave
collectively as though they are alike. In the present paper we show that
two well-known comparative statical propositions are highly sensitive to
the relaxation of the assumption and suggest that many other results are
equally fragile
Kazuo Nishimura(Kyoto University) and Koji Shimomura(Kobe University)
"Indeterminacy in a dynamic small open economy"
Journal of Economic Dynamics and Control
We show that, even under socially constant returns to scale, indeterminacy,
i.e., a continuum of dynamic general equilibrium paths converging to a
common steady state, can arise in a dynamic small open economy with
production externalities and endogenous time preferences in which
production is incompletely specialized.

March 2001

Toru Kikuchi (Kobe University)
"A Note on the Distribution of Trade Gains in a Model of Monopolistic Competition"
Open Economies Review
This note examines the relationship between relative country size
and the welfare consequences of opening trade in a model of
monopolistic competition with trade costs. The findings indicate
that if two countries produce differentiated products in
trading equilibrium, the rate of welfare changes brought
about by opening trade will be equalized across the countries.
Yuri Sasaki ( Meijigakuin University)
"Pricing-to-Market Behavior: Japanese Exports to the US, Asia and the EU"
Review of International Economics
This paper examines the pricing-to-market (PTM) behavior of Japanese
exporters in the US, Asian and EU markets. Our empirical evidence shows that
PTM elasticity is highest to the US market. This matches the intuitive
reasoning that the US market is more competitive than the EU and Asian
markets for Japanese exporters. Furthermore, PTM elasticities estimated in
this paper using expected exchange rates are positive but their amounts are
smaller than PTM elasticities estimated by previous papers with actual
exchange rates. The difference may be due to the fact that the invoice
currency for most Japanese exports is the US dollar.

February 2001

Yin-Wong Cheung (University of California, Santa Cruz) and Eiji Fujii (Otaru
University of Commerce)
“A Note on the Power of Money-Output Causality Tests”
Oxford Bulletin of Economics and Statistics
<efujii @>
This study suggests that some empirical findings against money-output
causality can be the consequence of ignoring autoregressive conditional
heteroskedastic (ARCH) errors. Monte Carlo results confirm that ARCH effects
drastically reduce the power of the standard causality test. The maximum
likelihood approach allowing for ARCH effects, on the other hand, provides a
good power performance. Using different specifications and sample periods,
Friedman and Kuttner (1993) and Thoma (1994) report limited evidence of
money causing output. We detect significant ARCH effects in the models
considered by these studies. Once ARCH effects are explicitly accounted for,
we find that the monetary effect is significant though its magnitude is
quite small.

January 2001

Yin-Wong Cheung, Menzie Chinn (University of California, Santa Cruz) and
Eiji Fujii (Otaru University of Commerce)
"Market Structure and the Persistence of Sectoral Real Exchange Rates"
International Journal of Finance and Economics
We examine the relationship between market structure and the persistence of
U.S. dollar-based sectoral real exchange rates for fourteen OECD countries.
Our empirical results based on disaggregated data suggest that differences
in market structure significantly determine the rates at which deviations
from sectoral purchasing power parity decay. Specifically, industries with a
larger price-cost margin are found to exhibit slower parity reversion of
their sectoral real exchange rates. Further, as the degree of intra-industry
trade activity increases, sectoral real exchange rate persistence becomes
more pronounced. These findings suggest that an imperfectly competitive
market structure contributes to the well-documented persistence in real
exchange rates.