Economic Research Working Papers

Working papers from the Federal Reserve Bank of Dallas are preliminary drafts circulated for professional comment.

2003 | 2002 | 2001 | 2000 | 1999 | 1998 and earlier

2001 Working Papers

0110
Are Labor Markets Segmented in Argentina? A Semiparametric Approach [PDF]
Center for Latin American Economics Working Paper 0701
Sangeeta Pratap and Erwan Quintin

We use data from Argentina's household survey to evaluate the hypothesis that informal workers would expect higher wages in the formal sector. Using various definitions of informal employment we find that, on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment  characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. In other words, we find no evidence that Argentina's labor markets are segmented along formal/informal lines.

0109
Limited Enforcement and the Organization of Production [PDF]
Center for Latin American Economics Working Paper 0601
Erwan Quintin

This paper describes a dynamic, general equilibrium model designed to assess whether contractual imperfections in the form of limited enforcement can account for international differences in the organization of production. In the model, limited enforcement constrains some agents to operate establishments below their optimal scale. As a result, economies where contracts are enforced more efficiently tent to be richer and emphasize large scale production. Calibrated simulations of the model reveal that these effects can be large and account for a sizeable part of the observed differences in the size distribution of manufacturing establishments between Mexico and the United States.

0108
Banking and Finance in Argentina in the Period 1900–35 [PDF]
Center for Latin American Economics Working Paper 0501
Leonard Nakamura and Carlos E. J. M. Zarazaga

From 1900 to 1935, Argentina evolved from an economy highly dependent on external, primarily British, finance to one more nearly self-sufficient. We examine the failure of domestic finance to adequately fill the void left by the decline of London and the breakdown of the world financial system in the interwar period, when neither the Buenos Aires Bolsa nor the private domestic banks developed rapidly enough to fully replace British investors as efficient channels for financing private investment. One consequence is that Argentine investable funds were increasingly concentrated in a single institution, the Banco de la Nacion Argentina (BNA), creating a lopsided financial structure that was vulnerable to rent seeking and to authoritarian capture. Nevertheless, several measures, including gold reserves, interest rates, money supply, bank credit, and the market capitalization of domestic corporations, attest to the very high level of financial development achieved by Argentina.

0107
Argentina's Lost Decade [PDF]
Center for Latin American Economics Working Paper 0401
Finn E. Kydland and Carlos E. J. M. Zarazaga

Argentina suffered a great depression in the 1980s that was as severe as the Great Depression experienced in the United States and Germany in the interwar period. Our paper examines this great depression from the perspective of growth theory, taking total factor productivity as exogenous. Overall, the predictions of the model are encouraging for the view that neoclassical growth theory can account for the main growth features of Argentina's lost decade and the subsequent recovery in the 1990s.

0106
Did NAFTA Really Cause Mexico’s High Maquiladora Growth? [PDF]
Center for Latin American Economics Working Paper 0301
William C. Gruben

Although Mexico's maquiladora or in-bond plant system is an important and well-recognized component of Mexico-U.S. trade, the connection between the acceleration in maquiladora growth and NAFTA is less clearly understood. A broad cross-section of maquiladora observers—including journalists, political activists, industry analysts, and professors—argue that Mexico's maquiladoras have been strongly influenced by NAFTA and have grown rapidly as a result. There are reasons to wonder if these conjectures are correct. I test for the contribution of NAFTA to fluctuations in maquiladora employment and find evidence that no such connection exists. Instead, maquiladoras' post-NAFTA growth is connected to changes in Mexican wages relative to those in Asia and in the United States, and to fluctuations in U.S. industrial production. Indeed, for every 1 percent change in U.S. industrial production I find a change in maquiladora employment of between 1.2 percent and 1.3 percent. This connection is consistent with declining maquiladora employment in 2001, as U.S. industrial production has fallen, but is not consistent with the NAFTA-caused-maquiladora growth story typically found in newspapers and magazines.

0105
Dollarization and Monetary Unions: Implementation Guidelines [PDF]
Dolarización y uniones monetarias: pautas de implementación [PDF]
Center for Latin American Economics Working Paper 0201
William C. Gruben, Mark A. Wynne, and Carlos E. J. M. Zarazaga

0104
Capital Account Liberalization and Disinflation in the 1990s [PDF]
Center for Latin American Economics Working Paper 0101
William C. Gruben and Darryl McLeod

As a way of addressing arguments in the literature (Rodrik, 1998) that the act of capital account liberalization leads to inflation, we present a simple theoretical model in which capital account liberalization raises the absolute value of the elasticity of money demand because agents have broader money holding options than under a closed capital account. The central bank maximizes seigniorage, balancing the benefits of higher inflation against potential losses of foreign currency reserves. The optimum seigniorage-maximizing rate of inflation falls when capital controls are loosened, as a result of the impact of liberalization on the elasticity of money demand. In a series of OLS and instrumental variables models that are heavily influenced by the work of Romer (1993) on current account openness and Grilli and Milesi-Ferretti (1995) on capital account openness, we test the impact of the act capital account liberalization (and many other factors) on inflation and find results that are consistent with our simple theoretical model and that are inconsistent with the recent work of Rodrik (1998).

0103
Do Amnesty Programs Encourage Illegal Immigration? Evidence from IRCA [PDF]
Pia M. Orrenius and Madeline Zavodny

This paper examines whether allowing certain undocumented immigrants to legalize their status leads to additional illegal immigration. We focus on the effects of the 1986 Immigration Reform and Control Act, which granted amnesty to over 3 million undocumented immigrants. We find that apprehensions of persons attempting to illegally cross the U.S.-Mexico border declined immediately following passage of the law but returned to normal levels during the period when illegal immigrants could file for amnesty and the years thereafter. Our findings suggest that the amnesty program did not change long-run patterns of illegal immigration from Mexico.

0102
Energy Prices and Aggregate Economic Activity: An Interpretative Survey [PDF]
forthcoming, Quarterly Review of Economics and Finance
Stephen P. A. Brown and Mine K. Yücel

In this paper, we survey the theory and evidence linking fluctuations in energy prices to aggregate economic activity. We then briefly examine the implications of this research for both monetary policy and energy policy in response to oil price shocks. Research seems to provide relatively reliable guidance for monetary policy. Because the precise channels through which oil price shocks affect economic activity are only partially known, however, research offers less guidance about how energy policy should cope with oil price shocks.

0101
What Goes Down Must Come Up: Understanding Time-Variation in the NAIRU [PDF]
Evan F. Koenig

The behavior of inflation during the 1990s is consistent with the predictions of a model that assumes a constant long-run NAIRU and a constant long-run markup of output prices over unit labor costs. Within this framework, inflation fell during the late 1990s-despite low unemployment-chiefly because an unusually high markup allowed firms to increase wages without raising prices. As the markup returns to normal, the recent unusually favorable unemployment-inflation trade-off can be expected to deteriorate. More generally, movements in the markup induce persistent but ultimately temporary variation in the NAIRU.