Recovering Ideal Work from an Expansion Engine - 913 Words

And the ideal work recoverable from an expansion engine as LN2 is evaporated at 77 K Additional potential remains for heat sinking by the cold N2 vapor, then brought up to ambient temperature (To = 300 K)or more, is shown or given by the difference in thermodynamic availability, ï â„¢ = h ï€ ­ sTo, between ambient states and liquid . This reversible work for liquid nitrogen LN2 is Wr = 800 kJ/kg-N2 and the relatively and corresponding sink efficiency is ï  ¢ = 1.78. Thus, for only a small fraction of the reversible work require to be recovered to gives the cryomobile with a driving range commensurate or start with that of battery- operated or powered vehicles of comparable weight. The relative merits of different ZEV technologies must also be evaluated on considerations (must) other than performance such as environmental friendliness(less emission ) and commuting utility. While the specific energy of liquid nitrogen LN2 or batteries is far below that of hydrocarbon fuels, the internal combustion engine cars cannot operate without polluting emissions and this thus should not be compared with ZEVs. ADVANTAGES Studies indicate or shows that liquid nitrogen automobiles will have relavent significant performance and environmental related advantages over an electric vehicles. A liquid nitrogen vehicle or car with a 60-gallon to 70 gallon tank will have a potential(power) range of up to 200 miles, or more than that of a typical electric car performance. One more thing isShow MoreRelatedWhat Are Stirling Engines?1536 Words   |  7 PagesWhat are Stirling Engines? Stirling engines are dynamic heat converters for converting heat energy in to work energy. They operate by the cyclic compression and expansion phases of gases and other fluids at different temperatures in such a way that heat energy is transformed in to mechanical work energy output [1]. 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Today, luxury goods industry wins great popularity all over the world, and obviously it already penetrated into people’s lives. 1.The Effect of Globalization and How Does Luxury Industry Recover from Crisis After World War II, due to the World Trade Organization reduce the international trade barriers and expand free trade, foreign trade between countries became more frequent. 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Strategic Planning, Learning Theory, and Training Needs Analysis Free Essays

The five phases of the training process model include; Needs Analysis Phase; Design Phase; Development Phase; Implementation Phase, and the Evaluation Phase. The â€Å"Needs Analysis Phase† is to determine each employee’s needs and ask â€Å"What do we want our employees to get out of the program? † This phase will help identify the difference between comparing the company’s current results to the company’s â€Å"expected organizational performances. The performance gap is one way to figure out what is best needed in the training process of the company. We will write a custom essay sample on Strategic Planning, Learning Theory, and Training Needs Analysis or any similar topic only for you Order Now Our text states that the â€Å"needs analysis phase begins when there is a performance problem within the organization. Examples of this problem might be: lack of quality, customer dissatisfaction, or reduced profits. If the identified problem is related to employee knowledge, skills, or attitudes, then a training need is indicated. † (Blanchard / Thacker, 2010) It is much less costly to have a gap analysis prepared; than to guess at what the needs are before the training objectives begin. The â€Å"Design Phase is where the needs of the â€Å"training objectives are created along with the factors needed to facilitate learning through content delivery. † This assessment of needs can be linked to the information and then used to â€Å"create the new curriculum of the program objectives. These provide specific direction for what will be trained and how. † The phase of design should allow us to begin to think about our â€Å"operational considerations to the program. We may ask ourselves how the delivery of the program is going to â€Å"influence the business operations† in the foreseeable future. (Blanchard / Thacker, 2010) The Development Phase is described as the â€Å"process of formulating an instructional strategy to meet a set of training objectives as well as obtaining or creating all the things that are needed to implement the training program. † In this stage the materials used can be movies, games, visual aids, etc. The trainer nee ds to be sure they keep the trainees fully engaged with activities to ensure the knowledge is retained. With updated materials and â€Å"revamping of statistical data† the trainee’s should be able to stay focused and interested in the program. (Blanchard / Thacker, 2010) In the Implementation Phase, â€Å"all the aspects of the training program come together,† and the training actually takes place. Some important things to keep in mind are what practices will be discussed; potential leadership skills; addressing classroom rules and class expectations required, and have on hand, a feedback form for the trainee’s to fill out at the end of the program. The Evaluation Phase consists of two types of evaluations. First, â€Å"the process evaluation determines how well a particular process achieved its objectives. † Like, â€Å"did the trainer follow the exact training process suggested? † Second, is the outcome evaluation, which is conducted at the end of the training to determine the effects of training on the trainee, the job, and the organization? † Furthermore, â€Å"if the outputs of the program were less than expected, then changes to the program may be necessary. Companies should establish a systematic evaluation process to enhance the effectiveness of the training. † The company really needs to determine, through the evaluation phase; whether the training enhanced employee’s performance or the company’s performance as expected. (Blanchard / Thacker, 2010) The end results focus on â€Å"both the evaluation process combined with the training unit and has a complete picture of the training from needs analysis to training techniques. It furnishes information about the trainer, and measures learner’s outcomes through reaction, learning, behavior, and results. (Blanchard / Thacker, 2010) Identify three factors that might inhibit HRD managers from developing a strategic planning approach to training. Recommend how these three factors might be overcome. Some factors that may inhibit a HRD manager from developing a strategic plan could be â€Å"the lack of motivation to participate in new learning tasks; a lack of funding available; a lack of clarity on the role of HRD; and perhaps not enough time available for new development in the company. †It is important for every Company in business to be aware of certain factors; in order to accomplish their goals successfully. Blanchard / Thacker, 2010) Overcoming some of these negative factors maybe the â€Å"HRD manager needs to ensure that their HR teams is open and committed to the highest training expectations that are available to every employee’s success. † (Blanchard / Thacker, 2010) The company should be totally â€Å"committed by financing the proper training that is needed for the future success of the company as a whole. † What a business puts into the investment of their employee’s, are most l ikely to surface motivated success for the company. The HRD should clearly clarify exactly what their role is going to entail, right from the start, so there will be full understanding of each employee’s expectations. The company needs to â€Å"dedicate sufficient amount of time each year for the proper training of its employee’s. † Dedication of the company is just as important as the employee’s dedicating their KSA to the company. Compare and contrast the behaviorist and the cognitive approaches to learning. Explain which is more relevant to training. Behaviorist approaches to learning usually are â€Å"focused on people who have specific observable behaviors or habits that they want to change. After understanding the principles of learning, they may even be able to modify their own behavior. † (Blanchard / Thacker, 2010) The Cognitive approaches are concerned with the â€Å"thought process; these people focus on changing the way they think. Our text explains that the cognitive approach suggests that the learner controls learning, and they may come to training with their own set of goals and priorities. † Whereas the behaviorist come to training with a specific goal and believe the â€Å"environment controls the learning outcome. (Blanchard / Thacker, 2010) The two definitely are different in ways, but â€Å"behavioral and cognitive approaches are being used in the same multimedia application. Both involve analysis, decomposition, and simplification of tasks in order to make instruction easier and more efficient† (Jonassen, 1991). Both use â€Å"devices to arouse, attract, and focus attention. Both force learner engagement through interactive decision-making points in the material. Both give importance to intrinsic feedback, though it may be expressed in voluntary help or advice option s in applications with cognitive design. Both value meaningful learning and realistic contexts for application of knowledge and skills† (Atkins, 1993). It is my opinion both are equally relevant to the training programs, depending on which approach one wants to take. Fully explain the purpose of a training needs analysis (TNA). Argue the conditions under which a TNA is always necessary, and offer two examples when a TNA might not be required. The purpose of a training needs analysis is to â€Å"close a gap between what the â€Å"actual organizational performances are and what the expected organizational performance should be. The TNA is represented as having a triggering event, an input stage, a process stage, and finally an output phase. † (Blanchard / Thacker, 2010) The input phase â€Å"consists of three levels of analysis; the organizational analysis focuses on organizational strategies, resources, resource allocation, and the internal environment. The analysis of the organization’s internal environment will help to identify the cause of the organizational performance gap, and will help to decide if training is the appropriate cure. (Blanchard / Thacker, 2010) The operational analysis â€Å"examines the specific jobs to determine and what KSA are necessary to get the job done. This process is known as job analysis, which is a detailed examination of all of the job tasks. Once the tasks are identified, then a decision can be made as to what KSAs are necessary to do the job competently. † (Blanchard / Thacker, 2010) The operational analysis â€Å"examines specific jobs to determine and what KSA are necessary to get the job done. This process is known as job analysis, and it is a very detailed examination of all of the job tasks. Once the tasks are identified, then a decision can be made as to what KSAs are necessary to do the job competently. † (Blanchard / Thacker, 2010) The person analysis; is the final stage that actually† focus on those in the job who are not meeting the performance requirements. Data on individual employees may come from a number of data sources, but the two most common sources are performance appraisals and efficiency tests. By incorporating the three levels of analysis, organizational, operational, and person, the identification of the performance gap should be complete. From here decisions can be made as to whether a training need or a non-training need has been identified. † (Blanchard / Thacker, 2010) The TNA is always necessary when the organization notices performance problems, because they need to know what the causes are, so they can be corrected in a timely manner. For most â€Å"training situations, use of the TNA will increase the relevance and effectiveness of the training. It ensures wise use of training funds, delivers the appropriate training to the right people, and contributes to the fulfillment of organizational goals. Diversity, language, retirement, and â€Å"turnovers are all factors that might contribute to a performance gap. † (Blanchard / Thacker, 2010) According to chapter 4 in our text; â€Å"TNA might not be necessary when an organization is trying to communicate a new vision or address a legal concern, which would include all employees to be present in the training program. † When the organization has d ecided to conduct â€Å"team building skills for a more positive performance outcome†; all employees will be trained in this case; there is no need for a TNA to be done. (Blanchard / Thacker, 2010) Reference Blanchard N. Thacker J. (2010) Effective Training: Systems, Strategies, and Practices, Pearson Education, Inc. / Prentice Hall, Upper Saddle River, New Jersey Martin G. L. Pear J. (2002) Behavior Modification: What It Is and How to Do It, 7th ed. New York: Prentice-Hall, Retrieved on April 25, 2011 from http://www.ryerson.ca/~glassman/behavior.html SBI Conduct a TNA to test and find out if training is the best solution Retrieved April 25, 2011 from http://www.leopard-learning.com/tna.html Jonassen, D.H. (1991). Objectivism versus constructivism: Do we need a new philosophical paradigm? Educational Technology Research and Development, 39(3), 5-14. Atkins, M.J. (1993). Theories of learning and multimedia applications: An overview. Research Papers in Education, 8(2), 251-271.Retreived on April 25, 2011 from http://www.ct4me.net/multimedia_design.htm How to cite Strategic Planning, Learning Theory, and Training Needs Analysis, Essays

Monetary Policy (5418 words) Essay Example For Students

Monetary Policy (5418 words) Essay Monetary PolicyInternational Dimensions to U.S. Monetary PolicyExecutive SummaryFederal Reserve monetary policy has traditionally focused on the domestic economy. Over time, however, a number of significant trends have underscored the potential importance of the international dimensions of contemporary monetary policy. Such trends include the following: ? Financial markets continue to become increasingly integrated internationally; capital is evermore mobile. ? The U.S. dollar continues to remain the worlds principal international currency despite evolving exchange rate arrangements. ? Official and unofficial dollarization has continued in several emerging market economies. These trends suggest that monetary policy may have differing transmission mechanisms increasingly involving international variables than was earlier the case. In addition to these trends, empirical evidence recently has accumulated showing that changes in U.S. monetary policy can significantly impact emerging mark et economies in a number of ways. For example, changes in U.S. monetary policy can (1) dominate capital flows in emerging market economies, (2) be associated with financial crises in these countries, and (3) significantly impact interest rates and financial markets in emerging economies under differing exchange rate arrangements. Furthermore, experience shows that the Federal Reserve can successfully assume international lender-of-last-resort responsibilities and stabilize world financial markets in situations of international liquidity crises. The Federal Reserve should increasingly recognize these international considerations when conducting monetary policy. International Dimensions to U.S. Monetary PolicyI. IntroductionTraditionally, Federal Reserve monetary policy has focused on the domestic economy. Although international factors have not been ignored, they have been subordinate to domestic concerns. International concerns are rarely important rationale influencing Federal Rese rve monetary policy decisions; further, the global impacts of U.S. monetary policy decisions seldom receive much attention from monetary officials. Recent trends and developments, however, suggest this domestic orientation may not be entirely satisfactory for U.S. monetary policy. There is a growing recognition of the fact that financial capital is increasingly mobile, and financial markets are evermore globally integrated. At the same time, varying degrees of dollarization have occurred in several emerging market economies and the dollar remains the worlds principal international currency despite evolving developments in exchange rate arrangements. These considerations have a number of important implications for U.S. monetary policy. For example, they help to explain why changes in U.S. monetary policy can have increasingly potent effects on emerging market economies that should be recognized and why the Federal Reserves implicit international lender-of-last-resort (LOLR) responsib ilities are so important.1 These international considerations can be taken into account by anchoring prices with a price stabilization policy goal and using key market price indicators as policy guides. After briefly describing these evolving circumstances namely, increased capital mobility, dollarization, and the international role of the dollar this paper briefly reviews the evidence suggesting that changes in Federal Reserve monetary policy have implications for both emerging markets and the global economy. Implications for the Federal Reserves international LOLR role are highlighted and some recommendations for monetary policy are outlined. Recent Trends and Developments ? Increasing Financial Integration and Growing Capital Mobility. Clearly, one important trend of recent years is increasing international financial integration and growing capital mobility.2 Most economists now recognize the inexorable trend toward globalization or growing international integration of financia l markets and increasing capital mobility. Empirical results, for example, increasingly provide evidence of growing capital mobility. In particular, data on capital flows as well as interest rate differentials indicate that a growing degree of capital market integration or increased capital mobility has occurred since the 1970s.3 The U.S. economy, along with most other economies, is more open. Many experts believe these trends are largely inevitable and irreversible, partly because they are being driven by communications and informational technological change and partly because policymakers increasingly recognize the many compelling benefits of regulatory changes that foster financial integration.4 Accordingly, a growing consensus among economists is that there is no turning back: i.e., that capital mobility is here to stay.5 There are a number of important implications of this increased international financial integration. This more open environment, for example, implies that chang es in monetary policy involve a somewhat different transmission mechanism. In particular, the more integrated the economy, the more quickly and substantially do divergent policies affect financial markets and capital flows. And the foreign exchange rate may play an increasingly important role in transmitting changes in monetary policy to the macroeconomy. Accordingly, exchange rate movements potentially may contain more useful information about changes in monetary policy than in previous, more closed (less integrated) circumstances. ? Clarification of the policy trilemmaThese altered conditions of increased capital mobility also place important constraints on monetary policy, commonly referred to as the policy trilemma. As Obstfeld ably describes it: The limitations that open capital markets place on exchange rates and monetary policy are summed up by the ideas of the inconsistent trinity or ?the open- economy trilemma that is, a country cannot simultaneously maintain fixed exchange rates and open capital markets while pursuing a monetary policy oriented toward domestic goals. Governments may choose only two of the above.6 If capital mobility is, indeed, an irreversible given, the policy choices circumscribed by the above trilemma are increasingly limited. In particular, policy choices are now between flexible exchange rate/domestic policy goal (e.g., inflation targeting) regimes and fixed exchange rate/without domestic goal regimes.7 If policymakers fix the exchange rate, they lose control of the interest rate; if they peg the interest rate they cant control the exchange rate. In starker terms, capital mobility confronts national authorities with a decision over controlling either interest rates or exchange rates.8 Some authors suggest that in recent years, the choice has moved mostly in favor of the flexible exchange rates/domestic policy alternative: i.e., mostly in favor of controlling interest rates rather than exchange rates.9 The U.S. has evolved into such a regime: namely, a de facto informal inflation targeting position.10 For most countries, this result may be due in part to considerations of political economy; contemporary political forces may mandate that domestic policy goals be given attention.11 Nonetheless, the trend does underscore the constraints brought to bear on policy choices by increased capital mobility. ? The Continued International Currency Role of the DollarAnother important trend relates to the continued international currency role of the U.S. dollar. Despite the collapse of the dollar-based Bretton Woods (fixed exchange rate) system and the move to more flexible exchange rate arrangements, the dollar continues to be used as the principal international currency. As Robert Mundell has aptly stated: Flexible exchange rates did not dispense with the need for international reserves or end the dominant role of the dollar. In one sense the dollar became more important than ever. The need for an international unit o f account for purposes of international trade and finance was just as great as ever, and the increased uncertainty associated with flexible exchange rates increased, rather than eliminated the need for international reserve assets? The dollar remained the principal international monetary reserve (in the 1980s and 1990s). The enhanced role of the dollar under flexible exchange rates was reflected in the rapid expansions of dollar reserves which has more than kept pace with the growth of trade?12 More specifically, the dollar continues to provide the principal functions of an international money and thereby remains the dominant international key, vehicle, and reserve currency. This fact has been documented by several recent studies .13 The continued use of international currency suggests there remains an important demand for the services of international currency: i.e., continued demand for a money for other monies. Given this existing global demand, important responsibilities accrue to the supplier of this principal global currency, the Federal Reserve. In particular, if the supplier of international reserve currency pays attention to changes in its demand and, accordingly, adjusts supply to match changes in the demand for international currency, global stability may be promoted. This suggests that the Federal Reserve should focus attention on price signals and should provide a stabilizing price anchor for the current fiat money system. It also suggests that the Federal Reserve as the supplier of the dominant international reserve asset should recognize that when it tightens policy (thereby restricting the supply of international reserves), other central banks may well tighten, and when it eases, others may ease. In short, its policy moves can be magnified or made more potent because of these reactions. Additionally, the use of global reserves suggests the need for the services of an international lender of last resort (LOLR) for liquidity crisis situations i nvolving sharp increases in the demand for international reserves.14 Since the Federal Reserve is the ultimate supplier of this liquidity, these international LOLR responsibilities fall upon the Federal Reserve. ? The Dollarization of Emerging Market EconomiesAnother notable and related development relates to the dollarization the official and unofficial use of the dollar to displace domestic currency in several emerging market economies. A number of studies examining the extent of such dollarization suggest that it is substantial in a number of countries, especially those in Latin America as well as in Russia.15 Related evidence indicates that foreigners hold significant percentages (above 50 percent) of dollar notes in circulation.16 This widespread dollarization suggests that changes in U.S. monetary policy may have important impacts on the many users of dollars. Accordingly, there may be potential implications for Federal Reserve monetary policy. Since these effects of changes in Federal Reserve policy can be nontrivial, it may be desirable to consider them in policymaking deliberations. Implications The trends and developments outlined here can have some important implications. All of these factors the increased international integration of financial markets together with dollarization and the continued international currency role of the dollar suggest that changes in Federal Reserve monetary policy may have differing effects than revealed in earlier experience. With this more open economy and key role of the dollar, the transmission mechanism of U.S. monetary policy may have changed. In particular, various financial markets (e.g., foreign exchange, bonds, equities) may currently play a more significant role in transmitting changes in monetary policy. Changes in U.S. monetary policy may have more potent impacts on foreign countries than earlier was the case. And the global economy itself may experience different impacts of changes in Federal Reserve p olicy. Some Emerging Empirical Evidence A growing body of empirical evidence suggests that changes in Federal Reserve monetary policy can have significant impacts on foreign countries, on international financial variables, and, indeed, on the global economy. This evidence, however, is dispersed among varieties of research concerned with related, but differing topics; for example, empirical evidence on the Federal Reserves international effects has emerged from studies examining the determinants of capital flows in emerging markets, the causes of recent banking and currency crises, and the choice of exchange rate regimes. The evidence is not centralized in readily accessible literature, in part because there are multiple channels through which changes in U.S. monetary policy can have its foreign impact. The form of this impact, moreover, depends in part on the existing exchange rate regime. This diverse literature relating to the international dimension of changes in Federal Reserve policy is organized into three categories and briefly surveyed as follows: ? Studies examining the determinants of capital flows. ============================================================ Medicine: Essay Recently, a number of studies have analyzed the determinants of sensitive capital flows to emerging market economies. Initially, researchers focused on the performance and differing characteristics of individual countries in explaining these capital flows; however, they soon noticed that capital flows tended to affect many emerging economies at the same time, despite their differing characteristics. In short, common (international) factors appeared to be important determinants of these movements. More specifically, investigators found that factors external to these emerging market economies such as international interest rate movements in large industrialized economies and financial centers such as the U.S. played a significant role in explaining these capital flows. In particular, changes in U.S. monetary policy tended to be associated with changes in financial (money, bond, and equity) markets in several emerging market economies. This was aptly stated by Calvo, et al. (1996): Th e tightening of monetary policy in the U.S. and the resulting rise in interest rates in early 1994 made investment in Asia and Latin America relatively less attractive? higher interest rates quickly and markedly affected developing country debt prices. Indeed, the rise in U.S. rates also triggered market corrections in several emerging stock markets. It seems likely that with highly integrated and technologically sophisticated financial markets, changes in relative rates of return will quickly translate into cross-border capital flows.17 Similarly, Goldstein and Turner (1996) argued that: ?empirical evidence suggests that movements in international interest rates can explain between one-half and two-thirds of the swings in private capital inflows to developing countries in the 1990s. Studies reaching conclusions consistent with these arguments include: Calvo et al. (1993), Dooley et al. (1994), Chuhan et al. (1993), Goldstein (1995), Fernandez-Arias (1994), Eichengreen (1991), and E ichengreen and Fishlow (1996).19 In short, this literature establishes that changes in external (or global) factors such as movements in the interest rates of leading industrial countries like the U.S. significantly influence emerging market financial markets and can be dominant determinants of capital flows to these emerging economies (especially in Latin America). ? Studies Examining the Causes of Recent International Financial or Banking CrisesA number of studies have examined the factors causing recent international financial or banking crises. While these studies identify multiple factors contributing to these crises, the literature does find that many banking crises in developing economies are associated with prior increases in the interest rates of key developed economies such as the U.S. Eichengreen and Rose (1998), for example, note that: Our central finding is a large, highly significant correlation between changes in industrial-country (including U.S.) interest rates and banking crises in emerging markets? Northern interest rates rise sharply and significantly (relative to their level in non-crisis control group cases) in the year preceding the onset of banking crises, before peaking in the crisis year and the year following. This result? points strongly to the role played by external financial conditions and in particular to the effect of rising interest rates in worsening the access of developing-country banking systems to offshore funds? Our finding of an important role for world interest rates in the onset of banking crises reinforces the conclusions of (others)? for increases in world interest rates to precipitate banking problems.20 Others have come to similar conclusions. Frankel and Rose (1996) find that increases in developed country (including U.S.) interest rates significantly enhance the likelihood of a currency crash in developing countries; increases in foreign (e.g., U.S.) interest rates play a meaningful role in predicting currency problems.21 Kaminsky and Reinhart (1996) suggest that external factors such as increases in interest rates in the U.S. may play an important role in explaining the prevalence of banking and balance of payment crises.22 Results consistent with this argument were attained by Chang and Velasco (1998). These authors contend that the 1997-98 crises in Asia were in fact a consequence of international illiquidity which could in turn be partly rectified by the liquidity provision of an international lender-of-last resort.23 In addition to evidence on the effects of changes in U.S. interest rates on recent international financial crises, evidence also exists as to the causal effects of changes in the foreign exchange value of the dollar on such crises.24 While several authors mention the role of dollar movements as contributing factors in the recent Asian financial crisis, Whitt (1999) provides convincing evidence that dollar appreciation prior to the recent Asian financial turbulence was a significant contributing factor to this crisis.25 Specifically, several key emerging economies in Asia tied their currencies to the dollar, yet maintained significant trading relationships with Japan. Consequently, a significant appreciation of the dollar relative to the yen impelled these countries to follow the dollar (and U.S. monetary policy), thereby causing their currencies to appreciate against the yen. Consequently, their trade positions with Japan were severely effected just before the currency attacks began, thereby significantly contributing to the financial crises in Asia.26 ? Other Evidence Evidence on the impact of changes in U.S. monetary policy on foreign (international) interest rates recently has emerged from research related to the choice of exchange rate regime literature. In considering alternative exchange rate regimes available to emerging market countries, for example, Frankel and others have examined the interest rate responses in emerging countries to chang es in U.S. (Federal Reserve) interest rates.27 Frankel finds that when the Federal Reserve raises interest rates, these increases are quickly and entirely passed through to those emerging market economies with exchange rates rigidly tied to the dollar. Such exchange rate regimes require the emerging economy to follow the same monetary policy as the U.S. regardless of its appropriateness to local economic conditions. The situation is even more dramatic, Frankel finds, for emerging market economies that maintained a loose link to the dollar (such as Brazil or Mexico). In these cases, a Federal Reserve interest rate hike induces local interest rates to increase by more than those in the U.S.; these emerging market rates turn out to be more sensitive to U.S. policy moves and rise by more than one-for-one.28 (Similar results are found by Hausmann et al., and Frankel and Okongwu.) Frankel argues that the reason for this surprising result is that the U.S. interest rate increase has a large negative effect on capital flows and international investors are nervous about the loose exchange rate link, requiring an extra risk premium for devaluation and default risk as well as for the lack of credibility on the part of macroeconomic policymakers. In short, this evidence indicates that changes in U.S. monetary policy can have potent impacts on the interest rates in emerging market economies under different exchange rate regimes. The evidence suggests that as international financial markets become more integrated, interest rates in emerging economies may become increasingly sensitive to changes in the interest rates of large developed countries. The empirical evidence briefly outlined here indicates that changes in U.S. monetary policy importantly affect financial markets in emerging markets in a number of ways. These changes may dominate capital flows in emerging market economies and U.S. rate hikes have been associated with banking or financial crises in these developing e conomies. Further, movements in U.S. interest rates may have potent effects on interest rates in emerging markets under differing exchange rate regimes. ? Anecdotal Evidence: The Interest Rate Cuts in the Fall of 1998 In addition to this growing collection of formal empirical evidence, anecdotal evidence is also relevant. In particular, assessments of the three Federal Reserve interest rate cuts in the fall of 1998 led several analysts and Fed watchers to conclude that international factors may have weighed heavily in precipitating this Federal Reserve action. These interest rate cuts, it will be remembered, took place in the context of international financial market turbulence associated with the Russian devaluation and debt moratorium in mid-August 1998. It was during this period that the Federal Reserve cut interest rates and took to monitoring risk and liquidity spreads after world financial markets threatened to seize up following the Russian problems. The official rationale fo r these rate cuts was always framed in terms of their effects on the U.S. economy. Nevertheless, FOMC minutes indicated the moves were undertaken in light of the effects of the prevailing global (international) turmoil including its impact on the liquidity of financial markets. In assessing the episode, various economists, Fed watchers, and market observers generally concurred with the need for Federal Reserve action. Their interpretations of this action, however, often more explicitly recognized the international dimension of the Federal Reserve policy moves and of the Federal Reserves implicit assumption of important international lender-of-last-resort responsibilities (associated with the dollars reserve currency status). One well-known market observer, Allen Sinai, for example, argued that: The Greenspan Federal Reserve appears to have shifted regime, operating with a new policy framework that takes the world economy and financial system into account, viewing the U.S. as one com ponent in this system.30Another market observer remarked: The Fed Chairman understood that he had to act quickly to convince markets the U.S. central bank was ready to assist the world economy in crisis.31Similarly, in remarks to the American Economic Association in January 1999, the IMFs Stanley Fischer stated that: ?in recent months the leading central banks, in recognition of the feedbacks between the emerging market and the industrialized economies, have taken actions in the interests of their own countries that stabilize the world economy.32 In short, in taking this action, the Federal Reserve indicated it is capable of taking international, global factors into account and, indeed, providing important international lender-of-last-resort services, thereby serving to calm skittish world financial markets in situations of sharp increases in demand for international liquidity.33 This is another manifestation of the international dimensions of Federal Reserve policy, which is someti mes not explicitly recognized. Summary Federal Reserve monetary policy has traditionally focused on the domestic economy. Over time, however, a number of significant trends have underscored the potential importance of the international dimension of contemporary monetary policy. Such trends include the following: ? Financial markets continue to become increasingly integrated internationally; capital is evermore mobile. ? The U.S. dollar continues to remain the worlds principal international (key, reserve, and vehicle) currency despite evolving exchange rate arrangements. ? Official and unofficial dollarization continues in several emerging market economies. These trends suggest that monetary policy may have differing transmission mechanisms increasingly involving international variables than was earlier the case. In addition to these trends, empirical evidence recently has accumulated showing that changes in U.S. monetary policy can significantly impact emerging market economies in a number of ways. For example, changes in U.S. monetary policy can (1) dominate capital flows in emerging market economies, (2) be associated with financial crises in these countries, and (3) significantly impact interest rates and financial markets in emerging economies under differing exchange rate arrangements. Furthermore, experience shows that the Federal Reserve can successfully assume international lender-of-last-resort responsibilities and stabilize world financial markets in situations of international liquidity crises. Implications for U.S. Monetary Policy Several important implications for U.S. monetary policy emerge from these trends and growing empirical evidence. They include the following: ? Given capital mobility and the practical reality that political pressures will dictate a preference for domestic monetary policy goals, the policy trilemma for the U.S. boils down to flexible exchange rate arrangements and a price stability objective for monetary policy. ? The Fede ral Reserve cannot deviate from or lose sight of its price stability goal, and the Federal Reserve should not sacrifice domestic for other goals. Nonetheless, it may be desirable to recognize the significant, increasingly important international repercussions of changes in U.S. monetary policy in order to better achieve these domestic goals. Recognizing these repercussions and their potentially important feedback effects suggest that changes in U.S. monetary policy may be more potent and wide-ranging than earlier believed. Consequently, to best achieve domestic goals in a nondisruptive manner, the degree or speed of policy moves may need to be adjusted accordingly. If these increasingly important repercussions and their potential feedback effects (e.g. changes in exports, import prices, or capital flows) can be identified, anticipated, and taken into account, their effects potentially may be offset, resulting in smoother transitions for the domestic economy and for financial markets . By taking these effects into account, implementation of policy changes can result in a less volatile, less costly, less disruptive outcome. Policy implementation may be improved. In short, informal inflation targeting by the Federal Reserve may be implemented in a way that recognizes international concerns. ? Recognizing these growing international impacts of changes in monetary policy suggests that in order for the Federal Reserve to best achieve its goals, policy changes may need to be undertaken in a well-telegraphed, gradual, deliberate manner so that no policy surprises or unanticipated repercussions occur, disrupting international and domestic markets. In short, to promote stability, the Federal Reserve may be well advised whenever possible to avoid sharp, rapid, and unexpected policy changes. ? The Federal Reserve should increasingly recognize international LOLR responsibilities and be prepared to respond to international liquidity crises.34 ? These international factors ma y best be taken into account by maintaining a stable price environment and carefully, jointly monitoring forward-looking market prices such as various bilateral and broad trade-weighted measures of the dollar exchange rate, commodity prices, and bond yields as policy indicators. These market price indicators may in turn be supplemented by various measures of global prices, world commodity prices, and global bond yields to gain information about prospective global price movements, global price expectations, and world liquidity.35Dr. Robert E. KeleherChief Macroeconomist to the Vice Chairman Endnotes 1. For a discussion of these responsibilities, see Robert E. Keleher, An International Lender of Last Resort, the IMF, and the Federal Reserve, Joint Economic Committee, February 1999. 2. The word integration denotes the bringing together of parts into a whole. The more integrated markets are, the more they behave as a unified whole, rather than segmented parts. Financial market integrati on increases the degree of interdependence among financial markets and such integration is alternatively defined as (1) the extent to which markets are connected, (2) the degree of responsiveness and sensitivity to foreign disturbances, or (3) the degree of openness. 3. See, for example, Maurice Obstfeld, The Global Capital Market: Benefactor of Menace?, Journal of Economic Perspectives, Volume 12, Number 4, Fall 1998, pp.9-30; Maurice Obstfeld and Alan M. Taylor, The Great Depression as a Watershed: International Capital Mobility over the Long Run, in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Edited by Michael D. Bordo, Claudia Goldin, and Eugene N. White, University of Chicago Press, Chicago, 1998, pp.353-402. 4. See Barry Eichengreen, Toward A New International Financial Architecture, Institute for International Economics, Washington DC, 1999, pp.2-3. 5. See, for example, Eichengreen, op. cit., p.3 6. Obstfeld, (1998) op. cit., p p.14-5. 7. These might take the form of currency boards or dollarization regimes. 8. Obstfeld, 1998, op. cit., p.18. 9. For an alternative perspective, see Jeffrey Frankel, No Single Currency Regime is Right for All Countries of at All Times, NBER Working Paper 7338, September 1999. 10. Inflation targeting in and of itself does not have to be exclusively inward looking in the U.S., but instead can be implemented in a way that recognizes international concerns (see below). 11. See, for example, Barry Eichengreen, Globalizing Capital, Princeton University Press, Princeton, 1996, p.195. 12. R.A. Mundell, The Future of the Exchange Rate System, paper prepared for the Rocca di Salimbeni Conference, Monte dei Paschi di Siene, Siena, Italy, November 24, 1994, p.12 (parentheses added). 13. See Ronald McKinnon, Mundell, the Euro, and the World Dollar Standard, paper prepared for presentation at the American Economic Association, January 8, 2000, pp.8-10, and Philipp Hartmann, Currency Compet ition and Foreign Exchange Markets: The Dollar, the Yen, and the Euro, Cambridge University Press, Cambridge, 1998, pp. 35-39, especially Chapter 2. 14. See Robert E. Keleher, An International Lender of Last Resort, the IMF, and the Federal Reserve Joint Economic Committee, February, 1999. 15. See Kurt Schuler, Basics of Dollarization, JEC Staff Report, July 1999. 16. See, for example, Richard D. Porter and Ruth A. Judson, The Location of U.S. Currency: How much is Abroad? Federal Reserve Bulletin, October 1996, pp.883-903. 17. Guillermo Calvo, Leonard Leiderman, and Carmen Reinhart, Inflows of Capital to Developing Countries in the 1990s, Journal of Economic Perspectives, Volume 10, Number 2, Spring 1996, p. 126. 18. Morris Goldstein and Philip Turner, Banking Crises in Emerging Economies: Origins and Policy Options, B.I.S. Economic Papers No. 46, October 1996, p. 10. 19. Guillermo Calvo, Leonard Leiderman, and Carmen Reinhart, Capital Inflows and Real Exchange Rate Appreciation in Latin America, IMF Staff Papers, Vol. 40, No. 1, March 1993, pp. 108-151; Michael Dooley, Eduardo Fernandez-Arias, and Kenneth Kletzer, Recent Private Capital Flows to Developing Countries: Is the Debt Crisis History?, NBER Working Paper, No. 4792, July 1994; Punam Chuhan, Stijn Claessens, and Nlandu Mamingi, Equity and Bond Flows to Asia and Latin America: The Role of Global and Country Factors, Policy Research Working Papers, International Economics Department, World Bank, WPS 1160, July 1993; Morris Goldstein, Coping With Too Much of a Good Thing, Policy Research Working Paper 1597, International Economics Department, The World Bank, September 1995; Eduardo Fernandez-Arias, The New Wave of Private Capital Inflows: Push or Pull? Policy Research Working Paper 1312, The World Bank, November 1994.; Barry Eichengreen, Trends and Cycles in Foreign Lending, in Horst Siebert (ed.), Capital Flows in the World Economy, Tubingen; Mohr, 1991, pp. 3-28; Barry Eichengreen and Albert Fishlow, Contending With Capital Flows: What is Different About the 1990s? A Council on Foreign Relations Paper, 1996. 20. Barry Eichengreen and Andrew K. Rose, Staying Afloat When the Wind Shifts: External Factors and Emerging-Markets Banking Crises, NBER Working Paper 6370, January 1998, pp. 5, 6 (parentheses added). 21. Jeffrey A. Frankel and Andrew K. Rose, Currency Crashes in Emerging Markets: An Empirical Treatment, Journal of International Economics, 41, Nos. 3/4, November 1996, pp. 351-366. 22. Graciela L. Kaminsky and Carmen M. Reinhart, The Twin Crises: The Causes of Banking and Balance Payments Problems, International Finance Discussion Papers, Federal Reserve Board, 1996-554, p. 8. 23. Roberto Chang and Andres Velasco, The Asian Liquidity Crisis, NBER Working Paper 6796, November 1998 (quoted from abstract). 24. Changes in the foreign exchange value of the dollar can importantly reflect changes in U.S. monetary policy. 25. See Joseph Whitt, The Role of External Shocks in the Asia n Financial Crisis, Economic Review, Federal Reserve Bank of Atlanta, Second Quarter 1999, pp. 18-31, and studies cited therein (p. 24). 26. See also Ronald I. McKinnon, Euroland and East Asia in a Dollar-Based System, The International Economy, September/October 1999, p. 45, 67. 27. See Jeffrey A. Frankel, No Single Currency Regime is Right for All Countries, Testimony before the Subcommittee on Domestic and International Monetary Policy of the Committee on Banking and Financial Services, U.S. House of Representatives, May 21, 1999(a); Jeffrey A. Frankel, No Single Currency Regime is Right for All Countries or at All Times, NBER Working Paper 7338, September 1991(b); Jeffrey A. Frankel and Chudozie Okongwu, Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence, International Journal of Finance and Economics, Vol. 1, No. 1, January 1996, pp. 1-23; and Ricardo Hausmann, Michael Gavin, Carmen Pages-S erra, and Ernesto Stein, Financial Turmoil and the Choice of Exchange Rate Regime, Inter-American Development Bank, Office of Chief Economist, Working Paper #400, 1999. The discussion here follows Frankel 1999(a). 28. See Frankel 1999(a), pp. 7-8; and Frankel 1999 (b), p. 22. 29. See, for example, Minutes of the Federal Open Market Committee, Federal Reserve Bulletin, January 1999, p. 45. 30. Sinai was quoted in Gerald Baker, Man of the Year Alan Greenspan: Guardian Angel of the Financial Markets, Financial Times, December 24, 1998, p. 9. 31. Baker, ibid. 32. Stanley Fischer, On the Need for an International Lender of Last Resort, paper prepared for delivery at the American Economic Association, New York, January 3, 1999. 33. It should be noted that key market price indicators (i.e., commodity prices, bond yields, and the foreign exchange value of the dollar) were signaling the Federal Reserve to ease at the time and broad measures of price inflation were benign. 34. For a discussio n of these responsibilities and ways to implement them, see Keleher op. cit., p. 9. 35. See discussion in Keleher, op. cit., p.9. Return Home Economics Essays