Special Issues

Background and motivation: Econometrics is often used passively to provide the economist with some parameter estimates in a model which from the outset is assumed to be empirically relevant. In this sense, econometrics is used to illustrate what we believe is true rather than to find out whether our chosen model needs to be modified or changed altogether.
The econometric analyses of this special issue should take its departure from the latter more critical approach. We would like to encourage submissions of papers addressing questions like whether a specific economic model is empirically relevant in general or, more specifically, in a more specific context, such as in open, closed, deregulated, underdeveloped, mature economies, etc. For example, are models which were useful in the seventies still relevant in the more globalized world of today? If not, can we use the econometric analysis to find out why this is the case and to suggest modifications of the theory model?
We encourage papers that make a significant contribution to the discussion of macroeconomics and reality, for example, by assessing the empirical relevance of influential papers, or the robustness of policy conclusions to econometric misspecification and the ceteris paribus clause, or by comparing different expectations's schemes, such as the relevance of forward versus backward expectations and of model consistent rational expectations versus imperfect/incomplete knowledge expectations, etc.

The realization that actions taken today can have long term consequences, presents a new challenge to decision makers in assessing the desirability of policies and projects, a challenge summarized as the goal of 'sustainable development'. The use of the classical net present value (NPV) rule to assess the economic efficiency of policies with costs and benefits that accrue in the long term is problematic. The welfare of future generations barely influences the outcome of such a rule when constant socially efficient discount rates are used for all time. The deleterious effects of exponential discounting ensure that projects that benefit generations in the far distant future at the cost of those in the present are less likely to be seen as efficient, even if the benefits are substantial in future value terms. From the perspective of social choice, the present yields a dictatorship over the future. This is illustrated in the conclusion of the Copenhagen Consensus in which different public investment projects have been examined by a panel of prestigious economists. Using standard cost-benefit analysis, they ranked projects with distant benefits (e.g. global warming) at the lowest level of priority compared to programs yielding almost immediate benefits (e.g. fighting malaria and AIDS, and providing sanitation in developing countries).

Many countries (for example, France and the UK) have recently decided to reduce their discount rate, and to use smaller rates to discount costs and benefits occurring in the distant future. This tends to favor the distant future compared to projects with benefits occurring in the shorter term. Moreover, recent economic literature proposes the use of a discount rate which declines with time, according to some predetermined trajectory. In comparison with the use of a constant discount rate, using a declining discount rate raises the weight attached to the welfare of future generations. This special issue answers the following questions. What trajectory of interest rates is consistent with the goal of sustainable development and what are the policy implications of applying this optimal trajectory on climate change policy.

About 7-8 leading authors in the field including K. Arrow (University of Stanford), G. Chichilnisky (Columbia University), C. Gollier (University of Toulouse) and C. Hepburn (University of Oxford) have confirmed their contribution.

This special issue is designed to bring together some of the recent cutting edge research in the area of International Money and Finance (IMF). Both theoertical and empirical papers will be considered and the topic of the paper should clearly fall within the scope of IMF. Examples of topics of special interest are: the economics of exchange rates (such as equilibrium exchange rates and exchange rate forecasting), tests of the efficient markets hypothesis in forward and futures markest; the determination of capital movements; globalisation issues; open economy macro issues, such as developments in the New Open Economy Macroeconomics; and Transition economies and the International Monetary System.