IMF research conference honors Guillermo Calvo
| Pages | 149-152 |
Page 149
The conference brought together renowned academics and policymakers who have been associated with Calvo during his illustrious career. Some of Calvo's former colleagues at Columbia University- where he began his academic career in the early 1970s-gave fascinating behind-the-scenes accounts of Calvo's early professional blossoming. Delivering the opening remarks, Agustín Carstens (IMF Deputy Managing Director) struck a theme that resonated throughout the conference. He said, "Guillermo's ability to reduce complex problems to their essential elements has taught us that complex models are for lesser minds-for those who cannot grasp the essential elements out of a given reality. In Guillermo's hands, the chaos of reality has always yielded simple and illuminating models."
Calvo played a particularly crucial role, noted Andres Velasco (Harvard University), in bringing policy issues relevant to Latin America to the forefront of academic discussion. As Velasco put it, "[if] there is one person responsible for bringing modern economics to bear on the problems of the nations south of the Río Bravo, that person is Guillermo Calvo.He brought rigor and discipline to the business.He also made it intellectually respectable."Page 150
Is inflation targeting suitable for developing countries? One of Calvo's concerns with such a framework is that giving too much discretion to policymakers in a weak institutional environment could lead to poor macroeconomic outcomes. Frederic Mishkin (Columbia University) acknowledged that emerging market countries often have weak fiscal, financial, and monetary institutions; exhibit varying degrees of currency substitution and liability dollarization; and are vulnerable to sudden stops in capital flows and terms of trade shocks. But he argued that inflation targeting could still serve emerging market countries well, provided they put due emphasis on strengthening institutions and on finding ways to deal with large exchange rate fluctuations.
Presenting a paper coauthored with Ariel Burstein and Martin Eichenbaum, Sergio Rebelo (Northwestern University) focused on the effect of large devaluations on real exchange rates in emerging markets. They found that when measured "at the dock," prices of tradable goods basically rise in the same proportion as the nominal exchange rate. This is critical because, when measured at the retail level, tradable goods prices include distribution costs, which are nontradable and respond very little to large devaluations. Rebelo concluded that the real depreciation of the domestic currency is not due to the failure of the law of one price for tradable goods but rather to the small response of nontradable goods prices.
Should an open economy peg its currency to a strong world currency, or let the currency float? The...
To continue reading
Request your trial