Coping with Commodity Coping with Commodity Volatility:Volatility:

Macroeconomic Policies Macroeconomic Policies for Developing Countriesfor Developing Countries

May 24, 2013May 24, 2013

Jeffrey FrankelHarpel Professor of Capital Formation & Growth

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In 2008, the government of Chilean President Bachelet& her Finance Minister Velasco ranked low in public

opinion polls.

Presidents Patricio Aylwin, Eduardo Frei, Ricardo Lagos and Michelle BacheletData: CEP, Encuesta Nacional de Opinion Publica, October 2009, www.cepchile.cl. Source: Engel et al (2011).

Evolution of approval and disapproval of four Chilean presidents

By late 2009, they were the most popular in 20 years. Why?

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Commodity exporters face extra volatility in their terms of

trade

Choices of macroeconomic policies & institutions can help manage the volatility.

Too often, historically, they have exacerbated it:

Pro-cyclical macroeconomics (i) capital flows, money, credit; (ii) currency policy; relative price of nontraded goods; and (iii) fiscal policy.

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(i) Pro-cyclical capital flows According to intertemporal optimization theory,

capital flows should be countercyclical: flowing in when exports do badly and flowing out when exports do well.

In practice, it does not always work this way. Capital flows are more procyclical than countercyclical. Gavin, Hausmann, Perotti & Talvi (1996); Kaminsky, Reinhart & Vegh (2005); Reinhart & Reinhart (2009); and Mendoza & Terrones (2008).

Theories to explain this involve capital market imperfections,

e.g., asymmetric information or the need for collateral.

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(ii) Pro-cyclical monetary policy

If the exchange rate is fixed, surpluses during commodity booms can lead

to: Rising reserves Excessive money & credit Excess demand for goods; overheating Inflation Asset bubbles.

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Macro effects of commodity boom

Inflation shows up especially Inflation shows up especially in non-traded goods & in non-traded goods & services, services, like construction.like construction.

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Pro-cyclical real exchange rateCountries undergoing a commodity boom

experience real appreciation of their currency

The resulting shift of land, labor The resulting shift of land, labor && capital capital out of manufacturing, and into the booming out of manufacturing, and into the booming commodity sectorcommodity sector might be might be appropriate & inevitable, appropriate & inevitable,

to the extent it is expandable,to the extent it is expandable, especially if the commodity boom is permanent.especially if the commodity boom is permanent.

But the shift out of manufacturing But the shift out of manufacturing into into NTGsNTGs is often an undesirable is often an undesirable macroeconomic side effect –macroeconomic side effect –

the “disease” part of Dutch Disease.the “disease” part of Dutch Disease.

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(iii) Procyclical fiscal policy

Fiscal policy has historically tended Fiscal policy has historically tended to be procyclical in developing countries to be procyclical in developing countries especially among commodity exporters:especially among commodity exporters: Cuddington (1989), Tornell & Lane (1999), Kaminsky, Cuddington (1989), Tornell & Lane (1999), Kaminsky,

Reinhart & Végh (2004), Talvi & Végh (2005), Alesina, Reinhart & Végh (2004), Talvi & Végh (2005), Alesina, Campante & TabelliniCampante & Tabellini (2008), Mendoza & Oviedo (2006), (2008), Mendoza & Oviedo (2006), Ilzetski & Végh (2008), Medas & Zakharova (2009), Gavin & Ilzetski & Végh (2008), Medas & Zakharova (2009), Gavin & Perotti (1997).Perotti (1997).

Correlation of income & spending mostly Correlation of income & spending mostly positive –positive –

in comparison with industrialized countries.in comparison with industrialized countries.

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Correlations between Gov.t Spending & GDP1960-1999p

rocyclic

al }

G always used to be pro-cyclical for most developing countries.

countercyclic

al

Adapted from Kaminsky, Reinhart & Vegh (2004)

10101010

The procyclicality of fiscal policyThe procyclicality of fiscal policy

A reason for procyclical public A reason for procyclical public spending: spending: receipts from taxesreceipts from taxes && royalties rise in royalties rise in booms.booms.

The government cannot resist the temptation The government cannot resist the temptation to increase spending proportionately, or to increase spending proportionately, or more.more.

Then it is forced to contract in recessions, Then it is forced to contract in recessions, thereby exacerbating the swings. thereby exacerbating the swings.

11111111

Two budget items account for much Two budget items account for much

of the spending from oil booms:of the spending from oil booms: (i) Investment projects.(i) Investment projects.

Investment in practice may be Investment in practice may be “white“white elephant” projects,elephant” projects,

which are stranded without funds which are stranded without funds for completion or maintenance for completion or maintenance when the oil price goes back down.when the oil price goes back down.

Gelb Gelb (1986).(1986).

(ii) The government wage bill.(ii) The government wage bill. Oil windfalls are often spent on public sector Oil windfalls are often spent on public sector

wages. wages. Medas & Zakharova Medas & Zakharova (2009) (2009)

Arezki & IsmailArezki & Ismail (2010)(2010): : government spending rises in booms, but is downward-sticky.

Rumbi Sithole took this photo in “Bayelsa Statein the Niger Delta,in Nigeria.

The state government received a windfall of money and didn't have the capacity to have it all absorbed in social services so they decided to build a Hilton Hotel. The construction company did a shoddy job, so the tower is leaning to its right and it’s unsalvageable..”

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An important development -- An important development -- some developing countries, including some developing countries, including commodity producers, were able to break commodity producers, were able to break the historic pattern in the most recent the historic pattern in the most recent decade:decade: taking advantage of the boom of 2002-2008taking advantage of the boom of 2002-2008

to run budget surpluses & build reserves,to run budget surpluses & build reserves,

thereby earning the ability to expand thereby earning the ability to expand fiscally in the 2008-09 crisis.fiscally in the 2008-09 crisis.

Chile, Botswana, Malaysia, Indonesia, Korea…Chile, Botswana, Malaysia, Indonesia, Korea…

How were they able to achieve counter-cyclicality?How were they able to achieve counter-cyclicality?

The procyclicality of fiscal policy,The procyclicality of fiscal policy, contcont..

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Correlations between Government spending & GDP 2000-2009

In the last decade, about 1/3 developing countries

switched to countercyclical fiscal policy:Negative correlation of G & GDP.

Frankel, Vegh & Vuletin (2012)

procyclic

al

countercyclic

al

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1. How can a country avoid excessive credit 1. How can a country avoid excessive credit creation creation & inflation in a commodity boom ?& inflation in a commodity boom ? Eventually allow some currency appreciation.Eventually allow some currency appreciation.

But not a free float. But not a free float. Accumulate some fx reserves first.Accumulate some fx reserves first.

2. Nominal anchor for monetary policy:2. Nominal anchor for monetary policy:

What is it to be, What is it to be, if not the exchange rate? CPI?if not the exchange rate? CPI? 3. Fiscal policy:3. Fiscal policy:

How can governments be constrained from How can governments be constrained from over-spending in boom times? Fiscal rule?over-spending in boom times? Fiscal rule?

4. What microeconomic arrangements 4. What microeconomic arrangements can reduce macroeconomic volatility? can reduce macroeconomic volatility?

Four questions for macro Four questions for macro managementmanagement

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1) The challenge of designinga monetary regime for countries where

terms of trade shocks dominate the cycle

Fixing the exchange rateleads to pro-cyclical monetary policy: Money flows in during commodity booms.

Excessive credit creation can lead to inflation. Example: Saudi Arabia & UAE during the 2003-08 oil

boom.

Money flows out during commodity busts. Credit squeeze can lead to excess supply,

recession & balance of payments crisis. Example: Exporters of oil & other commodities

in 1980s or 1997-98.

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Currency regime, continued

Floating accommodates terms of trade shocks: If terms of trade improve,

currency automatically appreciates, preventing excessive money inflows, overheating &

inflation. If terms of trade worsen,

currency automatically depreciates, preventing recession & balance of payments crisis.

Disadvantages of floating: Volatility can be excessive; Dutch Disease can be worse:

pro-cyclicality of real exchange rate.

One needs a nominal anchor.

Demand vs. supply shocksDemand vs. supply shocks An old wisdom regarding the source of shocks:An old wisdom regarding the source of shocks:

Fixed rates work best if shocks are mostly Fixed rates work best if shocks are mostly internal demand shocks (especially monetary); internal demand shocks (especially monetary);

floating rates work best if shocks tend to be floating rates work best if shocks tend to be real shocks (especially external terms of trade).real shocks (especially external terms of trade).

One set of supply shocks: One set of supply shocks: natural disasters natural disasters R.RamcharanR.Ramcharan (2007) (2007) finds floating works better. finds floating works better.

A common source A common source of real shocks: trade.of real shocks: trade.

Terms-of-trade variabilityTerms-of-trade variability

Prices of crude oil and other agricultural Prices of crude oil and other agricultural && mineral mineral commodities hit record highs in 2008 & 2011.commodities hit record highs in 2008 & 2011.

=> Favorable terms of trade shocks for some => Favorable terms of trade shocks for some (oil (oil producers, Africa, Latin America, etc.);producers, Africa, Latin America, etc.);

=> Unfavorable terms of trade shock for others => Unfavorable terms of trade shock for others (oil importers such as Japan, Korea).(oil importers such as Japan, Korea).

Textbook theory says a country where trade shocks Textbook theory says a country where trade shocks dominate should accommodate by floating.dominate should accommodate by floating.

Confirmed empirically:Confirmed empirically: Developing countries facing terms of trade shocks do Developing countries facing terms of trade shocks do

better with flexible exchange rates than fixed exchange better with flexible exchange rates than fixed exchange rates.rates.

Broda Broda (2004(2004),), Edwards & L.Yeyati Edwards & L.Yeyati (2005), (2005), RafiqRafiq (2011), (2011), andand Céspedes Céspedes && Velasco Velasco (2012)…(2012)…

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Constant term not reported. (t-statistics in parentheses.)

** Statistically significant at 5% level.

Across 107 major commodity boom-bust cycles,output loss is bigger the bigger is the commodity price change & the smaller is

exchange rate flexibility.

Céspedes & Velasco (Nov. 2012) NBER WP 18569 “Macroeconomic Performance During Commodity Price Booms & Busts”

2020

Monetary regime

If the exchange rate is not to be the monetary anchor, what

is?

The popular choice of the last decade:Inflation Targeting.

But CPI targeting can react perversely

to supply shocks & terms of trade shocks.

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Needed: Nominal anchors that accommodate the shocks that are common in developing

countries

Supply shocks, e.g., droughts, floods, hurricanes: Nominal GDP targeting.

Terms of trade shocks e.g., fall in price of commodity export.

Product Price TargetingPPT

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Nominal GDP targetNominal GDP targetcancels out velocity shocks cancels out velocity shocks (vs. M target) (vs. M target)

& moderates effects of supply shocks& moderates effects of supply shocks (vs. IT)(vs. IT)

Real GDP

PAdverse AS shock

AS

AD

IT••

•Nom.GDP

target

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Does NominalDoes Nominal GDPGDP target give best output/inflation target give best output/inflation trade-off?trade-off?

Real GDP

P

Adverse AS shock

AD

Nom.GDP

target

IT•

•

It gives exactly the right answer if the simple Taylor Rule’s equal weights accurately capture what discretion would do. Even if not exact, the “true” objective function would have to put far more weight on P than output, or AS would have to be very steep, for the P rule to give a better outcome.

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Product Price Targetingaccommodates terms of trade

shocks Target an index of domestic production

prices [1]

such as the GDP deflator.

• Include export commodities in the index & exclude import commodities,

• so money tightens & the currency appreciates when world prices of export commodities rise

• accommodating the terms of trade --• not when prices of import commodities rise.

• The CPI does it backwards:• It calls for appreciation when import prices rise,• not when export prices rise ! [1] Frankel (2011,

2012).

PPT

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Why is PPT better than a fixed exchange ratefor countries with volatile export prices?

If the $ price of the export commodity goes up,

the currency automatically appreciates, moderating the boom.

If the $ price of export commodity goes down, the currency automatically depreciates, moderating the downturn & improving the balance of payments.

PPT

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Why is PPT better than CPI-targetingfor countries with volatile terms of trade?

If the $ price of imported commodity goes up, CPI target says to tighten monetary policy enough to appreciate the currency. Wrong response. (E.g., oil-importers in 2007-08.) PPT does not have this flaw .

If the $ price of the export commodity goes up, PPT says to tighten money enough to appreciate. Right response. (E.g., Gulf currencies in 2007-08.)

CPI targeting does not have this advantage.

PPT

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Elaboration onProduct Price Targeting

Each of the traditional candidates for nominal anchor has an Achilles heel.

The CPI anchor does not accommodate terms of trade changes: IT tightens M & appreciates when import

prices rise not when export prices rise, which is backwards. Targeting core CPI does not much help.

PPT

Professor Jeffrey Frankel

Targeted variable

Vulnerability Example

Gold standard

Price of gold

Vagaries of world gold market

1849 boom; 1873-96 bust

Commodity standard

Price of agric. & mineral

basket

Shocks in imported

commodity

Oil shocks of 1973-80, 2000-11

Monetarist rule M1 Velocity shocks US 1982

Nominal income targeting

Nominal GDP

Measurement problems

Less developed countries

Fixed exchange rate

$ (or €)

Appreciation of $ (or € )

EM currency crises 1995-2001

Inflation targeting CPI

Terms of trade shocks

Oil shocks of 1973-80, 2000-11

6 proposed nominal targets and the Achilles heel of each:Vulnerability

• 2006: 100%• 2007: 63%• 2008: 72% • 2010: 58% • 2011 97% Do you personally

believe in IT? 38%

Is Inflation Targeting the reigning orthodoxy at the Fund? “Yes”

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3. How Can Countries Avoid Pro-cyclical Fiscal Policy?

“Good institutions.”

But what are they, exactly?

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”On Graduation from Fiscal Procyclicality,” Frankel, Végh & Vuletin; J.Dev.Economics, 2013.

Who achieves counter-cyclical fiscal policy?Countries with “good

institutions”

The quality of institutions varies, The quality of institutions varies, not just across countries, but also across not just across countries, but also across

time.time.

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1984-2009

Frankel, Végh & Vuletin,2013.

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”On Graduation from Fiscal Procyclicality,” Frankel, Végh & Vuletin; J. Devel. Econ., 2013.

The comparison holds not only in cross-section,but also across time.

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How can countries avoid fiscal expansion in booms?

What are “good institutions,” exactly?

Rules? Budget deficits or debt brakes?

Have been tried many times. Usually fail. Rules for cyclically adjusted budgets?

Countries more likely to be able to stick with them. But…

An under-explored problem: Over-optimism in official forecasts

of growth rates & budgets.

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Over-optimism in official forecasts

Statistically significant bias among 33 countries Worse in booms. Worse at 3-year horizons than 1-year. Frankel (2011, 2012).

Leads to pro-cyclical fiscal policy: If the boom is forecast to last indefinitely,

there is no apparent need to retrench.

BD rules don’t help. The SGP worsens forecast bias for euro countries. Cyclically adjusted rules won’t help the bias either. Frankel & Schreger (2013).

Solution?

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11st st rule – Governments rule – Governments must set a budget target,must set a budget target,     

22ndnd rule – The target is structural: rule – The target is structural: Deficits allowed only to the extent thatDeficits allowed only to the extent that (1) output falls short of trend, in a recession, (1) output falls short of trend, in a recession, oror

(2) the price of copper is below its trend.(2) the price of copper is below its trend.

33rdrd rule – rule – The trends are projected by 2 panels The trends are projected by 2 panels of independentof independent experts, outside experts, outside thethe political political process.process. Result: Chile avoided the pattern of 32 other Result: Chile avoided the pattern of 32 other

governments, governments, where forecasts in booms were biased toward where forecasts in booms were biased toward

optimism.optimism.

The example of Chile’s fiscal The example of Chile’s fiscal institutionsinstitutions

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Chilean fiscal institutions

In 2000 Chile instituted its structural budget rule.

The institution was formalized into law in 2006.

The structural budget surplus must be… 0 as of 2008 (was higher before, lower after), where “structural” is defined by output & copper price

equal to their long-run trend values.

I.e., in a boom the government can only spend increased revenues that are deemed permanent; any temporary copper bonanzas must be saved.

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Chile’s fiscal position strengthened immediately: Public saving rose from 2.5 % of GDP in 2000 to 7.9 % in 2005 allowing national saving to rise from 21 % to 24 %.

Government debt fell sharply as a share of GDP and the sovereign spread gradually declined.

By 2006, Chile achieved a sovereign debt rating of A, several notches ahead of Latin American peers.

By 2007 it had become a net creditor.

By 2010, Chile’s sovereign rating had climbed to A+, ahead of some advanced countries.

=> It was able to respond to the 2008-09 recession.

The Pay-off

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In 2008, with copper prices spiking up, the government of President Bachelet had beenunder intense pressure to spend the revenue. She & Fin.Min.Velasco held to the rule, saving most of it. Their popularity fell sharply.

When the recession hit and the copper price came back down, the government increased spending, mitigating the downturn. Bachelet & Velasco’s

popularity reached historic highs by the time they left office.

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And the Finance Minister?: August 2009

Chart source: Eduardo Engel, Christopher Neilson & Rodrigo Valdés, “Fiscal Rules as Social Policy,” Commodities Workshop, World Bank, Sept. 17, 2009

Poll ratings of Chile’s

Presidents and Finance

Ministers

In August 2009, the popularity of the Finance Minister, Andres Velasco,

ranked behind only President Bachelet, despite also having been low two years

before. Why?

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5 econometric findings regarding bias toward optimism in official budget forecasts.

Official forecasts in a sample of 33 countries on average are overly optimistic, for:

(1) budgets & (2) GDP .

The bias toward optimism is: (3) stronger the longer the forecast horizon; (4) greater in booms (5) greater for euro governments under SGP budget rules;

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US official projections have been over-optimistic on average.

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Greek official forecasts have always been over-optimistic.

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Chile’s official forecasts have not been over-optimistic.

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The optimism in official budget forecasts is The optimism in official budget forecasts is stronger at the 3-year horizon, stronger among stronger at the 3-year horizon, stronger amongcountries with budget rules,countries with budget rules, & stronger in booms.& stronger in booms.

Frankel, 2010, “A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile.”

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5 more econometric findings regarding bias toward optimism in official budget forecasts.

(6) The key macroeconomic input for budget forecasting in most countries: GDP. In Chile: the copper price.

(7) Real copper prices revert to trend in the long run.

But this is not always readily perceived: (8) 30 years of data are not enough

to reject a random walk statistically; 200 years of data are needed.

(9) Uncertainty (option-implied volatility) is higher when copper prices are toward the top of the cycle.

(10) Chile’s official forecasts are not overly optimistic.It has apparently avoided the problem of forecasts that unrealistically extrapolate in boom times.

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In sum, institutions recommended to make fiscal policy less procyclical:

Chile is not subject to the same bias toward over-optimism in forecasts of the budget, growth, or the all-important copper price.

The key innovation that has allowed Chile to achieve countercyclical fiscal policy: not just a structural budget rule in itself, but rather the regime that entrusts to two panels

of experts estimation of the long-run trends of copper prices & GDP,

insulated from political pressure & wishful thinking

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Application to others

Any country could emulate the Chilean mechanism, or in other ways delegate to independent agencies.

Suggestion: give panels more institutional independence as is familiar from central banking:

laws protecting them from being fired.

Open questions: How much of the structural budget calculations are

to be delegated to the independent panels of experts? Minimalist approach: they compute only 10-year moving averages.

Can one guard against subversion of the institutions (CBO) ?

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Contractual provisions to share risks:Contractual provisions to share risks:1. Index contracts with foreign companies1. Index contracts with foreign companies

to the world commodity price.to the world commodity price.

2. Hedge commodity revenues 2. Hedge commodity revenues in options markets.in options markets.

3. Denominate debt in terms of commodity price .3. Denominate debt in terms of commodity price .

Manage commodity funds professionally.Manage commodity funds professionally.

4. Other reforms to manage volatility

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Norway’s Pension Fund Norway’s Pension Fund All govt. oil revenues go into it.All govt. oil revenues go into it. GovermnentGovermnent (on average over the cycle) (on average over the cycle)

can spend expected real return, say 4%.can spend expected real return, say 4%. All invested abroad. All invested abroad. Reasons:Reasons:

((1) for diversification,1) for diversification, (2) to avoid cronyism in investments.(2) to avoid cronyism in investments.

ButBut insulated from politics, insulated from politics, like Botswana’s Pula Fund,like Botswana’s Pula Fund,

fully delegated for financial optimization.fully delegated for financial optimization.

Manage commodity funds professionally.

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References by the author Project Syndicate,,

““Escaping the Oil Curse,”  ,”  Dec.9, 2011.Dec.9, 2011. ""Barrels, Bushels & Bonds: : How Commodity Exporters Can Hedge Volatility,"  ,"  Oct.17, 2011. Oct.17, 2011. 

““The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions,” 2012, ,” 2012, Commodity Price Volatility and Inclusive Growth in Low-Income CountriesCommodity Price Volatility and Inclusive Growth in Low-Income Countries , , R.Arezki et al., eds. (IMF); HKS R.Arezki et al., eds. (IMF); HKS RWP12-014.  . 

“How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?” in Natural Resources, Finance & Development. R.Arezki, T.Gylfason & A.Sy, eds. (IMF), 2011.  HKS RWP 11-015.

“On Graduation from Fiscal Procyclicality,”  withwith C. C.Végh & G. & G.Vuletin, , in Journal of Development Economics, , 100, no.1, Jan.2013, Jan.2013; pp. 32-47.   ; pp. 32-47.   NBER WP 17619.  Summary, .  Summary, VoxEU, , 2011.2011.

Chile's Countercyclical Triumph," ," in Transitions, , Foreign Policy, June 2012., June 2012.

“A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile,” Central Bank of Chile WP604, 2011. Spanish::Journal Economía Chilena , , Aug.2011, , CBC, 39-78. , 39-78.

 ""Product Price Targeting -- A New Improved Way of Inflation Targeting," ," in MAS Monetary Review MAS Monetary Review XI, 1, 2012 (Monetary Authority of Singapore)., 2012 (Monetary Authority of Singapore).

“A Comparison of Product Price Targeting and Other Monetary Anchor Options, for Commodity-Exporters in Latin America," Economia, 2011 (Brookings), NBER WP 16362. 

http://www.hks.harvard.edu/fs/jfrankel/

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References by others

Rabah Arezki and Kareem Ismail, 2010, “Boom-Bust Cycle, Rabah Arezki and Kareem Ismail, 2010, “Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease,” IMF WP/10/94, Asymmetrical Fiscal Response and the Dutch Disease,” IMF WP/10/94, April.April.

Christian Broda, 2004, "Terms of Trade and Exchange Rate Regimes in Christian Broda, 2004, "Terms of Trade and Exchange Rate Regimes in Developing Countries," Developing Countries," Journal of International EconomicsJournal of International Economics, 63(1), 31-58., 63(1), 31-58.

Luis Céspedes & Andrés Velasco, 2012, “Macroeconomic Performance Luis Céspedes & Andrés Velasco, 2012, “Macroeconomic Performance During Commodity Price Booms & Busts” NBER WP 18569, Nov. During Commodity Price Booms & Busts” NBER WP 18569, Nov.

GracielaGraciela Kaminsky, Carmen Reinhart & Carlos Vegh, 2005, "Kaminsky, Carmen Reinhart & Carlos Vegh, 2005, "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," " NBER Macroeconomics Annual 2004NBER Macroeconomics Annual 2004, , 19, pp.11-8219, pp.11-82..

Warwick McKibbin & Kanhaiya Singh, “Issues in the Choice of a Warwick McKibbin & Kanhaiya Singh, “Issues in the Choice of a Monetary Regime for India,” 2003, Monetary Regime for India,” 2003, in Kaliappa Kalirajan & Ulaganathan Sankar (eds.) Economic Reform and the Liberalisation of the Indian Economy (Edward Elgar Publ., UK), pp. 221-274.

James Meade, 1978, “The Meaning of Internal Balance,” James Meade, 1978, “The Meaning of Internal Balance,” The Economic The Economic JournalJournal, 91, 423-35., 91, 423-35.

Jeffrey Sachs, “How to Handle the Macroeconomics of Oil Wealth,” Jeffrey Sachs, “How to Handle the Macroeconomics of Oil Wealth,” 2007, 2007, in in Escaping the Resource CurseEscaping the Resource Curse,, M.Humphreys, J.Sachs & J.Stiglitz, eds. (Columbia M.Humphreys, J.Sachs & J.Stiglitz, eds. (Columbia Univ. Press: NY), pp. 173-93.Univ. Press: NY), pp. 173-93.

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