nep-ifn New Economics Papers
on International Finance
Issue of 2006‒01‒24
23 papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models By Bjorn A. Hauksson
  2. The U.S. Current Account Deficit and the Expected Share of World Output By Charles Engel; John H. Rogers
  3. The Balassa-Samuelsson effect and the wage, price and unemployment dynamics in Spain By Katarina Juselius,; Javier Ordóñez
  4. AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates By Eiji Ogawa; Junko Shimizu
  5. Bi-Polar Disorder: Exchange Rate Regimes, Economic Crises and the IMF By Graham Bird; Dane Rowlands
  6. Exchange Rate Smoothing in Hungary By Péter Karádi
  7. The duration of fixed exchange rate regimes By Sébastien Wälti
  8. Some Empirical Observations on the Forward Exchange Rate Anomaly By Derek Bond; Michael J. Harrison; Niall Hession; Edward J. O'Brien
  9. Prospects For Enhanced Exchange Rate Cooperation in East Asia: Some Preliminary Findings from Generalized PPP Theory By Peter Wilson; Choy Keen Meng
  10. The Impact of Central Bank FX Interventions on Currency Components By Michel Beine; Charles S. Bos; Sebastian Laurent
  11. The Interaction between Technical Currency Trading and Exchange Rate Fluctuations By Stephan Schulmeister
  12. DSGE Models of High Exchange-Rate Volatility and Low Pass-Through By Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
  13. Bank interest rate pass-through in the euro area: a cross country comparison By Christoffer Kok Sorensen; Thomas Werner
  14. Estimating the immediate impact of monetary policy shocks on the exchange rate and other asset prices in Hungary By András Rezessy
  15. Towards European monetary integration - the evolution of currency risk premium as a measure for monetary convergence prior to the implementation of currency unions By Fernando González; Simo Launonen
  16. Financial Market Integration in East Asia: Regional or Global? By Jongkyou Jeon; Yonghyup Oh; Doo Yong Yang
  17. Ireland in EMU: more shocks, less insulation? By Patrick Honohan; Anthony Leddin
  18. The Social Cost of Foreign Exchange Reserves By Dani Rodrik
  19. Are emerging market currency crises predictable? A test By Tuomas A. Peltonen
  20. Is time ripe for a currency union in emerging East Asia? The role of monetary stabilisation By Marcelo Sánchez
  21. Financial structure and the transmission of monetary shocks: preliminary evidence for the Czech Republic, Hungary and Poland By Alessio Anzuini; Aviram Levy
  22. Estimating the Effect of Hungarian Monetary Policy within a Structural VAR Framework By Balázs Vonnák
  23. Macroeconomics and Forest Sustainability in the Developing World By Sedjo, Roger

  1. By: Bjorn A. Hauksson
    Abstract: I show that the empirical impulse response of the real exchange rate is hump-shaped. This fact can explain why a number of recent authors have been unable to match the persistence of the real exchange rate using sticky-price business cycle models driven by monetary shocks. The key failure of the models used in the recent literature is that they yield monotonic impulse responses for the real exchange rate. While it is extremely difficult for models that have this feature to match the empirical persistence of the real exchange rate, models that yield hump-shaped impulse responses for the real exchange rate can easily match the empirical persistence of the real exchange rate. I present a two-country sticky-price business cycle model that yields humpshaped responses for the real exchange rate in response to a number of different disturbances. This model can match the half-life of the real exchange rate as well as and the humped shape of its impulse response.
    Date: 2005–11
  2. By: Charles Engel; John H. Rogers
    Abstract: We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries -- more modest than the growth over the past 20 years -- the current account deficit is near optimal levels. We then explore the implications for the real exchange rate. Under some plausible assumptions, the model implies little change in the real exchange rate over the adjustment path, though the conclusion is sensitive to assumptions about tastes and technology. Then we turn to empirical evidence. A test of current account sustainability suggests that the U.S. is not keeping on a long-run sustainable path. A direct test of our model finds that the dynamics of the U.S. current account -- the increasing deficits over the past decade -- are difficult to explain under a particular statistical model (Markov-switching) of expectations of future U.S. growth. But, if we use survey data on forecasted GDP growth in the G7, our very simple model appears to explain the evolution of the U.S. current account remarkably well. We conclude that expectations of robust performance of the U.S. economy relative to the rest of the advanced countries is a contender -- though not the only legitimate contender -- for explaining the U.S.
    JEL: F3 F4
    Date: 2006–01
  3. By: Katarina Juselius,; Javier Ordóñez
    Abstract: This paper provides an empirical investigation of the wage, price and unemployment dynamics that have taken place in Spain during the last two decades. The aim of this paper is to shed some light on the impact of the European economic integration process on Spanish labour market and the convergence to a European level of prosperity. We find some important lessons to be learnt from the Spanish experience that should be relevant for the new member states. First, high competitiveness in the tradable sector seems crucial for the real and nominal convergence to be successful, implying that the increase of wages in the tradable sector, and subsequently in the nontradable sector, should not be allowed to exceed the growth in productivity. Second, before fixing the real exchange rate it seems crucial that it is on its sustainable (competitive) purchasing power parity level. A real appreciation, as a result of high growth rates during the catching-up period, is likely to be harmful for real growth and employment. The Balassa-Samuelsson effect and the wage, price and unemployment dynamics in Spain
  4. By: Eiji Ogawa; Junko Shimizu
    Abstract: The monetary authorities in East Asian countries have been strengthening their regional monetary cooperation since the Asian Currency Crisis in 1997. In this paper, we propose a deviation measurement for coordinated exchange rate policies in East Asia to enhance the monetary authorities' surveillance process for their regional monetary cooperation. We calculate the AMU as a weighted average of East Asian currencies following the method used to calculate the European Currency Unit (ECU) and the AMU Deviation Indicators, which how the degree of deviation from the hypothetical benchmark rate for each of the East Asian currencies in terms of the AMU. Furthermore, we investigate the relationships between the AMU and its Deviation Indicators and the effective exchange rates of each East Asian currency. As a result, we found the strong relationships between the AMU or the AMU Deviation Indicators and the effective exchange rates except for some currencies. These results indicate that the AMU Deviation Indicators have positive relationship with their effective exchange rates. Accordingly, we should monitor both the AMU and the AMU Deviation Indicator for the monetary authorities' surveillance in order to stabilize effective exchange rate in terms of trader partners' currencies.
    Date: 2006–02
  5. By: Graham Bird (University of Surrey); Dane Rowlands (Carleton University)
    Abstract: Over the course of the 1990s economists appeared to favour exchange rate regimes that were either completely flexible or rigidly fixed through mechanisms such as currency boards. According to this "bipolar" view of exchange rates, intermediate regimes were deemed to be ineffective and prone to crisis. This paper examines the link between exchange rate regimes and International Monetary Fund (IMF) programme use and finds fairly strong evidence that countries with intermediate exchange rate regimes are less likely to go to the IMF than others. To the extent that International Monetary Fund (IMF) programmes are a proxy for balance of payments difficulties, this finding supports the more recent, nuanced, literature on exchange rate regime choice.
    JEL: F33
    Date: 2005–04
  6. By: Péter Karádi (New York University, USA)
    Abstract: The paper proposes a structural empirical model capable of examining exchange rate smoothing in the small, open economy of Hungary. The framework assumes the existence of an unobserved and changing implicit exchange rate target. The central bank is assumed to use interest rate policy to obtain this preferred rate in the medium term, while market participants are assumed to form rational expectations about this target and influence exchange rates accordingly. The paper applies unobserved variable method – Kalman filtering – to estimate this implicit exchange rate target, and simultaneously estimate an interest rate rule and an exchange rate equation consistent with this target. The results provide evidence for exchange rate smoothing in Hungary by providing an estimated smooth implicit exchange rate target development and by showing significant interest rate response to the deviation of the exchange rate from this target. The method also provides estimates for the ceteris paribus exchange rate effects of expected and unexpected interest rate changes.
    Keywords: exchange rate smoothing, interest rate rules, Kalman filter
    JEL: E52 F31 F41
    Date: 2005
  7. By: Sébastien Wälti
    Abstract: This paper studies the survival of fixed exchange rate regimes. The probability of an exit from a fixed exchange rate regime depends on the time spent within this regime. In such a context durations models are appropriate, in particular because of the possible non-monotonic pattern of duration dependence. Non-parametric estimates show that the pattern of duration dependence exhibits non-monotonic behaviour and that it differs across types of economies. This behaviour persists when we control for time-varying covariates in a proportional hazard specification. We conclude that how long a regime has lasted will affect the probability that it will end, in a non-monotonic fashion.
    Keywords: Exchange rate regime, currency crisis, regime transition, duration models, survival analysis.
    JEL: F30 F31 F41
    Date: 2005–12–15
  8. By: Derek Bond (University of Ulster); Michael J. Harrison (Department of Economics, Trinity College); Niall Hession (University of Ulster); Edward J. O'Brien (Department of Economics, Trinity College and CBFSAI)
    Abstract: This paper looks at issues surrounding the testing of fractional integration and nonlinearity in relation to the forward exchange rate anomaly of Fama (1984). Recent tests for fractional integration and nonlinearity are discussed and used to investigate the behaviour of three exchange rates and premiums. The findings provide some support for I(1) exchange rates but suggest fractionality for premiums, mixed evidence on cointegration, and a strong possibility of time-wise nonlinearity. Significantly, when the nonlinearity is modelled using a random field regression, the forward anomaly disappears.
    JEL: C22 F31 F41
  9. By: Peter Wilson (Department of Economics, National University of Singapore); Choy Keen Meng
    Abstract: The Asian financial crisis increased economic disparities in the East Asian region, thus making monetary integration more difficult, but rekindled political interest in Asian monetary and exchange rate cooperation. This paper applies the theory of Generalized Purchasing Power Parity (G-PPP), which looks at the behavior of long-run real exchange rates, to assess the potential for an optimum currency area (OCA) among a subset of East Asian countries based on five of the more advanced members of the Association of Southeast Asian Nations (ASEAN5). Our findings suggest little support for an OCA for ASEAN5 as a bloc prior to the Asian financial crisis and mixed results in the post-crisis period. In particular, asymmetries in the way countries adjust to shocks and low or insignificant speeds of adjustment were found. Thus, although the application of single OCA criteria is notoriously demanding and our tests apply to only one of the many criteria for the successful formation of an OCA, we cannot find persuasive evidence that ASEAN5 as a group constitute a potential currency area with either the USA or Japan, even when the ‘noisy’ period of the Asian financial crisis is omitted.
    Keywords: Optimum currency area, exchange rates, East Asia, ASEAN
    JEL: F31 F33 F36
  10. By: Michel Beine (University of Luxemburg, and Free University of Brussels); Charles S. Bos (Vrije Universiteit Amsterdam); Sebastian Laurent (University of Namur, and CORE)
    Abstract: This paper is the first attempt to assess the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates (EUR/USD and YEN/USD) over the period 1989-2003. We identify the currency components of the mean and the volatility processes of exchange rates using the recent Bayesian framework developed by Bos and Shephard (2004). Our results show that in general, the concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets.
    Keywords: Central banks; interventions; exchange rates; stochastic volatility; state space
    JEL: C11 C32 E58 F31
    Date: 2005–11–10
  11. By: Stephan Schulmeister (Austrian Institute of Economic Research)
    Abstract: This paper examines the mutually reinforcing interactions between exchange rate dynamics and technical trading strategies. I first show that technical trading systems have been quite profitable during the floating rate period. This profitability stems from the successful exploitation of exchange-rate trends and not from taking winning positions relatively frequently. I then show that technical models exert an excess demand pressure on currency markets. When these models produce trading signals, almost all signals are on the same side of the market, either buying or selling. When technical models maintain open positions they are either long or short. Initial exchange rate movements triggered by news or by stop-loss orders are strengthened by technical trading and are often transformed into a trend. This 'multiplier effect' is reflected by the close relationship between technical trading signals and order flows. Hence, order flows are not only driven by (fundamental) news but also by technical trading, which reinforces exchange rate trends to which it responds.
    Keywords: Exchange rate; Technical trading; Heterogeneous agents.
    JEL: F31 G14 G15
    Date: 2005–12–29
  12. By: Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
    Abstract: This paper develops a quantitative, dynamic, open-economy model which endogenously generates high exchange rate volatility, whereas a low degree of exchange rate pass-through (ERPT) stems from both nominal rigidities (in the form of local currency pricing) and price discrimination. We model real exchange rate volatility in response to real shocks by reconsidering and extending two approaches suggested by the quantitative literature (one by Backus Kehoe and Kydland [1995], the other by Chari, Kehoe and McGrattan [2003]), within a common framework with incomplete markets and segmented domestic economies. We show that, in our framework, both approaches are successful in generating volatility without any need for nominal shocks, and without suffering from shortcomings such as a fall in import volatility. Our model accounts for a variable degree of ERPT over different horizons. In the short run, we find that a very small amount of nominal rigidities --- consistent with the evidence in Bils and Klenow [2004] --- lowers the elasticity of import prices at border and consumer level to 27% and 13%, respectively. Still, exchange rate depreciation worsens the terms of trade -- in accord with the evidence stressed by Obstfeld and Rogoff [2000]. In the long run, ERPT coefficients are also below one, as a result of price discrimination. We run a set of regressions adopted by the empirical literature on ERPT, typically plagued by omitted variable bias and measurement errors, on the time series generated by our model. The ERPT estimates are biased, although in most cases reasonable; most regressions can detect differences between short-run and long-run ERPT. We show that the quality of empirical proxies for marginal costs and demand typically vary depending on the shocks (real vs. nominal) hitting the economy.
    Keywords: DSGE models; exchange rate volatility; international business cycle; international transmission; pass-through
    JEL: F33 F41
    Date: 2005–12
  13. By: Christoffer Kok Sorensen (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.); Thomas Werner (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: The present paper investigates the pass-through between market interest rates and bank interest rates in the euro area. Compared to the large interest rate pass-through literature the paper mainly improves upon two points. First, a novel data set, partially based on new harmonised ECB bank interest rate statistics is used. Moreover, the market rates are selected in a way to match the maturities of bank and market rates using information provided by the new statistics. Secondly, new panel-econometric methods are applied to test for heterogeneity in the pass-through process. The paper shows a large heterogeneity in the pass-through of market rates to bank rates between euro area countries and finally possible explanations of the heterogeneity are discussed.
    Keywords: Interest rate pass-through; euro area countries; panel cointegration
    JEL: E43 G21
    Date: 2006–01
  14. By: András Rezessy (Magyar Nemzeti Bank)
    Abstract: The paper estimates the immediate impact of Hungarian monetary policy on three classes of asset prices: the exchange rate of the forint vis-à-vis the euro, spot and forward government bond yields and the index of the Budapest Stock Exchange. The endogeneity problem is treated with the method of identification through heteroskedasticity as described by Rigobon and Sack (2004). The results suggest a significant impact on the exchange rate in one day i.e. an increase in the policy rate leads to an appreciation of the domestic currency, which is in line with the classic intuition. The effect increases markedly when the estimation is carried out with a two-day window suggesting the inefficiency of markets in incorporating monetary policy decisions in asset prices in a short period of time. Monetary policy affects spot yields positively, but the effect gradually dies out as the horizon gets longer. This can be explained with the impact on forward yields, as the results suggest a positive impact on short-term and a negative impact on long-term forward yields meaning that a surprise change in the policy rate leads to a rotation of the forward curve. The method does not provide interpretable and significant results for the stock exchange index.
    Keywords: Monetary transmission mechanism, Asset prices, Exchange rate, Yield curve, Stock market, Identification, Heteroskedasticity.
    JEL: E44 E52
    Date: 2005
  15. By: Fernando González (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Simo Launonen (SEB Merchant Banking, Unioninkatu 30, P. O. Box 630, 00101 Helsinki, Finland)
    Abstract: We assess monetary convergence preceding the implementation of the EuropeanMonetary Union (EMU) through Kalman filtering estimates of the risk premium of eleven forward exchange rates of European and non-European currencies. Since all participating currencies are in effect identical from inception of a currency union, the convergence process to such an identical status should be reflected in the participating currencies' risk premiums prior to monetary union implementation. Starting from this assumption, we show the paths followed by the participating currencies towards monetary union. We find that the co-movements of risk premiums among the preceding European Monetary System (EMS) currencies differ across time periods but display a tendency to convergence to the German mark’s risk premium up to EMU implementation. The paper also shows a clear pattern of asymmetry of the participating currencies in relation to the German mark.
    Keywords: Currency unions, European Monetary Union, foreign exchange risk premium.
    JEL: F02 F31 F33 F36 G15 G18
    Date: 2005–12
  16. By: Jongkyou Jeon (Kyung Hee University); Yonghyup Oh (Korea Institute for International Economic Policy); Doo Yong Yang (Korea Institute for International Economic Policy)
    Abstract: One of the main culprits of the Asian crisis in 1997-1998 is believed to have been the lack of the strong regional financial market in East Asia. While East Asian countries do not seem to have completely tided over the memory of the crisis, two policy objectives are certianly set up: regional exchange rate stability and regional financial market development, aiming to strengthen financial market deepening within the region. This paper attempts to see how strong the degree of regional financial market integration in east Asia, viewed in a market perspective. We use three approaches and try to infer on how strong regional integration of these markets is relative to their integration with a global market.
    Keywords: Integration, East Asia, regional, financial market, exchange rate, global economy
    JEL: G15 G34 O24
    Date: 2005–10
  17. By: Patrick Honohan; Anthony Leddin
    Abstract: Despite anchoring the Irish monetary system to a common zone-wide exchange rate and interest rate, EMU has triggered sizable exchange rate and especially interest rate shocks to the Irish economy (albeit not appreciably greater than those experienced under previous exchange rate regimes). Interest rate movements have deviated widely from what a standard Taylor monetary policy rule would have counseled – though here again the deviations have been no worse in this regard than those of the previous regime. The most important shock has been associated with the large and sustained initial fall in nominal interest rates as EMU began. Through mechanisms which we formally model, the interest rate fall has had a lasting effect on property prices, construction activity and on the capacity of the labour market to absorb sizable net immigration, despite a sharp deterioration in wage competitiveness since 2002. As the long drawn-out impact of this shock subsides, the failure of the wage-bargaining system promptly to claw back the loss of competitiveness resulting from exogenous exchange rate movements is increasingly likely to show up in weaker aggregate employment performance.
    Date: 2005–12–15
  18. By: Dani Rodrik
    Abstract: There has been a very rapid rise since the early 1990s in foreign reserves held by developing countries. These reserves have climbed to almost 30 percent of developing countries' GDP and 8 months of imports. Assuming reasonable spreads between the yield on reserve assets and the cost of foreign borrowing, the income loss to these countries amounts to close to 1 percent of GDP. Conditional on existing levels of short-term foreign borrowing, this does not represent too steep a price as an insurance premium against financial crises. But why developing countries have not tried harder to reduce short-term foreign liabilities in order to achieve the same level of liquidity (thereby paying a smaller cost in terms of reserve accumulation) remains an important puzzle.
    JEL: F3
    Date: 2006–01
  19. By: Tuomas A. Peltonen (European Central Bank, Postfach 16 03 19, 60066 Frankfurt am Main, Germany)
    Abstract: This paper analyzes the predictability of emerging market currency crises by comparing the often used probit model to a new method, namely a multi-layer perceptron artificial neural network (ANN) model. According to the results, both models were able to signal currency crises reasonably well in-sample, but the forecasting power of these models out-ofsample was found to be rather poor. Only in the case of Russian (1998) crisis were both models able to signal the crisis well in advance. The results reinforced the view that developing a stable model that can predict or even explain currency crises is a challenging task.
    Keywords: Currency crises, emerging markets, artificial neural networks.
    JEL: F31 E44 C25 C23 C45
    Date: 2006–01
  20. By: Marcelo Sánchez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper assesses the prospects for monetary integration between Emerging East Asian (EEA) economies. Our empirical analysis is based on a simple analytical framework for currency unions of small open economies, with a focus on the conduct of monetary policy in the presence of different types of shocks. Our empirical analysis looks at a number of supply-side characteristics of EEA countries, distinguishing between aggregate and tradable sector structural features. Moreover, we discuss the evidence on the cross-country variation of disturbances hitting the region. Our study indicates that, at present, EEA economies exhibit a high degree of cross-country supply diversity, while there is no compelling evidence that shocks are highly correlated across the region.
    Keywords: East Asia, emerging economies, currency union, stabilisation.
    JEL: E52 E58 F33 F40
    Date: 2005–12
  21. By: Alessio Anzuini (Banca d'Italia); Aviram Levy (Banca d'Italia)
    Abstract: The paper analyses the financial structure of the private sector in the Czech Republic, Hungary and Poland and assesses its implications for the monetary transmission mechanism. The financial accounts of these countries provide a picture of a private sector which is predictably financially less mature than the EU average: the corporate sector relies significantly on non-market financial liabilities (such as trade credits and non-traded shares) and bears a substantial exchange rate risk; the household sector is less sophisticated both in terms of financial assets, whose composition is tilted towards bank deposits, and liabilities, the volume of which is still negligible. VAR system estimates conducted separately on each acceding country suggest that, despite the inferior financial development of these countries, the co-movement of macroeconomic variables conditional on a monetary policy shock is similar across countries and not dissimilar to what is found in the more advanced economies.
    Keywords: Financial structure, identified VAR, monetary policy shock, price puzzle.
    JEL: C30 E44 E52 F41
    Date: 2004–07
  22. By: Balázs Vonnák (Magyar Nemzeti Bank)
    Abstract: A standard approach in measuring the effect of monetary policy on output and prices is to estimate a VAR model, characterise somehow the monetary policy shock and then plot impulse responses. In this paper I attempt to do this exercise with Hungarian data. I compare two identification approaches. One of them involves the ‘sign restrictions on impulse responses’ strategy applied recently by several authors. I also propose another approach, namely, imposing restrictions on implied shock history. My argument is that in certain cases, especially in the case of the Hungarian economy, the latter identification scheme may be more credible. In order to obtain robust results I use two datasets. To tackle possible structural breaks I make alternative estimates on a shorter sample as well. The main conclusions are the followings: (1) although the two identification approaches produced very similar results, imposing restrictions on history may help to dampen counterintuitive reaction of prices; (2) after 1995 a typical unanticipated monetary policy contraction (a roughly 25 basis points rate hike) resulted in an immediate 1 per cent appreciation of the nominal exchange rate (3) followed by a 0.3% lower output and 0.1-0.15% lower consumer prices; (4) the impact on prices is slower than on output; it reaches its bottom 4-6 years after the shock, resembling the intuitive choreography of sticky-price models; (5) using additional observations prior to 1995 makes identification more difficult indicating the presence of a marked structural break.
    Keywords: structural VAR, monetary transmission mechanism, identification, sign restriction, monetary policy shocks
    JEL: C11 C32 E52
    Date: 2005
  23. By: Sedjo, Roger (Resources For the Future)
    Abstract: Governments often use fiscal, exchange rate, monetary policy as well as export promotion tax increases, privatization, and land reform as part of comprehensive adjustments packages for addressing economic imbalances, balance of payments, and structural weaknesses. Such approaches, however, have come under heavy criticism for failing to recognize the social and environmental costs associated with them. Critics have argued that economic growth, trade liberalization, and increased primary product exports increase pressure on many sectors, including the agricultural and forestry land use sectors. This paper examines a number of these types of external shocks. This paper makes two arguments. First, from a theoretical economic perspective, although in many cases structural adjustment programs can be expected to affect the domestic forest sector, in other cases they will not. Second, even when there is an impact on the forest, it need not be detrimental to environmental and ecosystem values. A sustainable forest system needs to provide wood, local environmental products and services, and global ecological services, but individual forests can specialize in some of these.
    Keywords: forests, sustainability, macroeconomics, trade, exchange rates, structural adjustment

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