A problem in the use of adaptive expectations as a mechanism for generating expectations of inflation is the assumption that the speed with which individuals revise their expectations is constant. The purpose of this paper is to estimate the Cagan model of the demand for money for six hyperinflation countries allowing the coefficient of expectations (which measures the response to the error between the actual and the expected rate of inflation) to vary with the level and the change in the rate of inflation. The results indicate considerable support for this particular hypothesis.

The optimal rate of monetary expansion is derived for the case when the government resorts to deficit financing to finance its development expenditure. It is argued that, while higher rates of monetary expansion increase investment and contribute to future consumption, the consequent inflation imposes welfare costs by reducing the level of real balances held by the public. A theoretical framework is developed and its empirical implications considered by deriving the optimal rate of monetary expansion which maximizes the discounted flow of total consumption--material consumption minus the disutility of holding suboptimal levels of real balances--over time.

It has been argued recently by Friedman that the whole term structure of interest rates rather than any single rate represents the relevant opportunity cost of holding money. The purpose of this paper is to present a way to incorporate the term structure in the demand-for-money function compactly with a few parameters and offer empirical evidence for the United States over the period 1960-76 supporting the validity of such an approach. Furthermore, we establish that this function appeared to be stable during a period (1972-74) when standard functions using only one interest rate display significant shifts in parameters.

IN the area of international trade, there have been a number of studies designed to explain imports and exports disaggregated by commodities.' These studies, however, all concentrate on the trading patterns of industrial countries and there has been very little in the way of a systematic analysis of the imports and exports by types of commodities for developing countries. There is, of course, an obvious reason for ignoring these countries, and that has to do with the availability, or rather paucity, of adequate data; this data problem is most pronounced in the area of prices of disaggregated imports and exports. Although it is generally believed that the trading patterns of developing countries differ from those of the developed, an empirical examination would be necessary to determine the extent of such a difference. The purpose of this paper is to study the behavior of the imports of Venezuela at both the aggregated and disaggregated levels during the period 1953-1972. Data on imports at a disaggregated level have recently been made available for Venezuela for a nine-commodity breakdown;2 the data include the value and price for each of these categories on an annual basis, as well as the price of the domestic competing product. These nine categories cover some 80% of the total Venezuelan imports. The results of this study should provide information on the behavior of different types of import goods and on the nature and extent of the bias involved in estimates of elasticities based only on aggregate imports.

The late 1970's and early 1980's proved to be extremely trying economic times for the developing countries. Throughout most of the period, a combination of exogenous shocks, such as worsening terms of trade, falling growth rates in industrial countries, and sharp changes in the cost and availability of foreign financing, created serious macroeconomic management problems for policymakers in these countries. Adjustment to these shocks required fiscal and monetary restraint to control both public and private spending, and the adoption of a flexible exchange rate policy to prevent the emergence of unsustainable current account deficits, growing foreign debt burdens, and steady losses of international competitiveness. With certain exceptions, developing countries generally did not follow this policy prescription, and consequently compounded the negative effects of the exogenous shocks. The purpose of this paper is to evaluate the exchange rate responses of developing countries to the variety of exogenous shocks they faced in recent years. Essentially this involves an analysis of the behavior of the real exchange rate. Exchange rate policy responses have to be judged in terms of how the authorities used combinations of nominal exchange rate action and other policies to restrain domestic prices and factors to either support or offset the movements in the real exchange rate caused by external shocks. In this paper I discuss first the principal external shocks that occurred during the past decade, and then the likely effects of these on the real exchange rate. The picture is completed by a description of how real exchange rates actually evolved in developing countries during the period under consideration.

A problem in the use of adaptive expectations as a mechanism for generating expectations of inflation is the assumption that the speed with which individuals revise their expectations is constant. The purpose of this paper is to estimate the Cagan model of the demand for money for six hyperinflation countries allowing the coefficient of expectations (which measures the response to the error between the actual and the expected rate of inflation) to vary with the level and the change in the rate of inflation. The results indicate considerable support for this particular hypothesis.

The following sections are included:INTRODUCTIONTHEORETICAL SPECIFICATION OF THE EXPORT FUNCTIONSRESULTSCONCLUSIONAPPENDIXREFERENCES

The debt crisis that began in 1982 forced a number of developing countries that had relied on external financing into rapid adjustment of their current account positions. In many of these countries external adjustment mainly took the form of import reduction, or what has been termed 'import compression,' to generate trade balance surpluses necessary to service the existing stock of foreign debt. While the effects of import compression on consumption and growth have been discussed in the literature, there has been little concern expressed with regard to the direct effects such a policy can have on export performance. This paper develops a model that takes explicit account of the feedbacks between imports and exports that arise through the effects of imported inputs on exports and the availability of foreign exchange on imports. Empirical tests of this model for 34 developing countries tend to confirm both these hypotheses. These results point clearly for additional foreign financing to reduce the need for import compression and its attendant-negative effects on the supply of exports.