the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

the wait and see option in ascending price auctions ascending auctions offer agents the option to wait and see before deciding to drop out we show that in contexts where as time proceeds agents get finer and finer estimates of their valuations incentives to drop out at one s expected valuation are weak it is optimal for agents to wait and see we first illustrate the claim in a private value setting we next analyze an interdependent value setting in which this wait and see option results in an imperfect information aggregation we also analyze the implications for the seller s revenue and show that the ascending format may dominate the second price format independently of the date at which the second price auction is run jel d44 d83

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

asymmetric monetary policy empirical evidence for italy a growing body of empirical work has examined the potential asymmetry in the effects of monetary policy on united states real activity this study looks for such an empirical evidence for italy in the period 1982 1998 monetary shocks are obtained as residuals from a central bank reaction function where the three months interbank rate is taken as the indicator of the monetary policy stance the effects of these positive and negative shocks on output are statistically different from zero and the null of symmetry between the two is rejected in favour of negative shocks having a greater impact on real output growth thus confirming an asymmetric effect of monetary policy even for italy

speculative bubbles in the ff dm parity during the 1980s it is often argued that exchanged rates volatility during the 1980s was too excessive to be attributed only to market fundamentals this paper investigates for speculative bubles in the franc mark exchange rate applying direct tests for determinate bubbles and indirect ones according to the issues of integration and cointegration for stochastic bubbles in the context of a sticky price monetary model no clear cut conclusions can be drawn from these tests although all of them indicate that the no bubble hypothesis cannot be easily accepted however any evidence for bubbles should be interpreted with caution since a possible misspecification of the model may produce misleading inferences

asymmetric effects of federal funds target rate changes on s p100 stock returns volatilities and correlations we study the effects of fomc announcements of federal funds target rate decisions on individual stock returns volatilities and correlations at the intraday level for all three characteristics we find that the stock market responds differently to positive and negative target rate surprises first the average response to positive surprises that is bad news for stocks is larger second in case of bad news the mere occurrence of a surprise matters most whereas for good news its magnitude is more important these new insights are possible due to the use of high frequency intraday data

impact of r d expenditures rainfall and temperature variations in agricultural productivity empirical evidence from bangladesh abstractthis study aims to investigate dynamic relationships between research and development r d expenditure climate change measured by annual rainfall and temperature variations human capit

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

unobserved rational expectations and the german hyperinflation with endogenous money supply a kalman filtering technique is employed to test the convergent expectation hypothesis in the great german hyperinflation when the money supply is endogenously determined after converting the model structure to a state space form the parameters are estimated via minimization of a gaussian likelihood function the result is then used in a filter smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution bo th para metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the pricing of forward contracts for foreign exchange this paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market if these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies this condition imposes testable restrictions on the parameters of a multivariate regression model the empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

some evidence of speculative bubbles in the foreign exchange markets the authors propose that the poor performance of portfolio models is due to their exclusion of speculative bubbles they suggest a new unce rtainty bubble solution as opposed to a risk bubble solution discr etion is minimized because the trend of the bubble is an exact functi on of the structural parameters for three exchange rates the bubble augmented portfolio model passes the usual statistical tests and per forms better than its var equivalent in out of sample dynamic simulat ion when the model was reestimated with the bubbles removed and wit h ordinary dummies in place of the constrained trend the parameter e stimates were invariably insignificant copyright 1987 by ohio state university press

exchange rate bubbles fundamental value estimation and rational expectations test abstract we propose a model of periodically collapsing bubbles which extends the van norden 1996 model and nests it by considering a non linear specification for the bubble size in the survival regime and the endogenous determination of the level of the fundamental value of the stochastic process they allow us to test for rationality in the formation of expectations and remove the arbitrariness of exogenously setting the level of the fundamental value this general model is applied to the exchange rate of the brazilian real to the us dollar from march 1999 to february 2011 the futures market exchange rate is used as a proxy of its expected future value and three different structural models are considered for the determination of the fundamental value the first two imply that the exchange rate satisfies either purchasing power parity ppp or a modified version of it the third structural model is a version of the monetary model of exchange rate determination fitted to the period under consideration we obtain the maximum likelihood estimate of the parameters of the models explore the properties of the errors test its restricted versions and compare the three specifications for the fundamental we find that the models we propose fit well the data and are useful in the heuristic interpretation of the exchange rate movements of the period finally we select the structural models that display the best performance according to several criteria

expectations in an open economy hyperinflation evidence from germany 1921 23 abstract we reconsider the beladi et al 1993 technique to measure expectations in hyperinflation episodes by allowing money to be substitutable with foreign assets as well as goods we determine new correctness conditions for adaptive and rational expectations formation in this context and show that taking into account these conditions the data for the german hyperinflation of the 1920s is consistent with rational expectation formation

testing for rational bubbles with exogenous or endogenous fundamentals the german hyperinflation once more abstract the presence of rational price bubbles during the german hyperinflation is tested under two different structural assumptions on the money process if the money supply is constrained to be exogenous to the current inflation rate the hypothesis of no bubble can be rejected however this is no longer found to be true when a feedback rule from inflation to money creation is allowed the analysis contradicts previous results presented in the literature

endogenous risk in a portfolio balance rational expectations model of the deutschemark dollar rate abstract a portfolio balance model of the dm s rate under rational expectations is specified in which systematic risk induced deviations from uncovered interest parity are allowed this leads to a reduced from containing a potentially time varying risk premium which we approximate and estimate using an arch in mean approach the maximum likelihood estimator and a lagrande multiplier test for arch in mean are developed the estimation results indicate a small but non negligible time varying risk premium

on rational bubbles and fat tails this paper addresses the statistical properties of time series driven by rational bubbles a la blanchard and watson 1982 using insights on the behavior of multiplicative stochastic processes we demonstrate that the tails of the unconditional distribution emerging from such bubble processes follow power laws exhibit hyperbolic decline more precisely we find that rational bubbles predict a fat power tail for both the bubble component and price differences with an exponent smaller than 1 the distribution of returns is dominated by the same power law over an extended range of large returns although power law tails are a pervasive feature of empirical data these numerical predictions are in disagreement with the usual empirical estimates it therefore appears that exogenous rational bubbles are hardly reconcilable with some of the stylized facts of financial data at a very elementary level

estimation of linear rational expectations models in the presence of deterministic terms abstract hansen and sargent 1981b discussed instrumental variables procedures for estimating linear rational expectations models under the assumption that all variables have zero unconditional means this note points out two implications if variables instead have nonzero unconditional means first there are additional restrictions beyond those noted by hansen and sargent 1981b and second imposing these restrictions results in more efficient estimates of the parameters that are the focus of hansen and sargent 1981b explicit formulas are given for the restrictions generated by some commonly assumed deterministic terms

are there bubbles in the sterling dollar exchange rate new evidence from sequential adf tests there has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets this paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles we find strong evidence of explosive behavior in the nominal sterling dollar exchange rate however this explosive behavior should not be simply interpreted as evidence of rational bubbles as we show that it might be driven by the relative prices of traded goods

economic and monetary union in europe the european council s maastricht agreement maps out a precise route to monetary union and the eventual introduction of a common currency my discussion begins with a look at the general arguments for and against monetary union i shall then discuss the proposed constitution of the european central bank and whether it is likely to be conducive to monetary stability together with some of the problems posed by the transition to the new regime finally i will turn to the issue of rules for the conduct of fiscal policy and the question of fiscal federalism

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

the two waves of voucher privatization in the czech republic a model of learning in sequential bidding this study develops a dynamic model of bidding behaviour to investigate the czech voucher privatization process which took place in two waves of bidding rounds the first in 1992 and the second in 1994 it examines the voucher mechanism from the standpoint of investors and the pricing and allocation of shares investors could participate as independent individuals or by assigning some of all of their voucher points to investment privatization funds principal findings are that individual participants behaved differently from funds and benefited by learning from one round to the next and from observing the behaviour of the funds an important collateral finding is that the market though crude behaved efficiently in the adjustment of share prices over the bidding rounds

the classic european hyperinflations revisited testing the cagan model using a cointegrated var approach the cagan model of hyperinflation under rational expectations no bubbles and stationary velocity shocks has the implication that real balances cointegrate with money growth in a re examination of the classic european hyperinflations i find support for this cointegrating property which gives evidence against the assumption made in most previous studies that velocity shocks follow a random walk based on a cointegrated var model i reject statistically for four of the six hyperinflations the exact rational expectations cagan model but at the same time i find evidence of a substantial forward looking element in agents demand for real balances in the sense that a large part of the predictable movement in money growth is incorporated in agents demand for money

semiparametric tests for double unit roots in this article i argue that if an explosive root is considered a serious alternative to an 1 2 process then joint testing for the number of unit roots along the lines of hasza and fuller is preferable instead of prior differencing as suggested by dickey and pantula a semiparametric equivalent of the hasza fuller test that permits rather general assumptions about the innovation process is developed the test is a straightforward generalization of the phillips z test for a single unit root through monte carlo simulations the different tests are compared and the article is completed by an empirical application examining the purchasing power parity for several latin american countries for which both explosive and double unit roots may be a possibility

does the lucas critique apply during hyperinflation empirical evidence from four hyperinflationary episodes farmer review of economic studies 58 321 32 1991 suggests that in a model in which there are multiple rational expectations equilibria agents may find it useful to coordinate their expectations in a unique rational expectations equilibrium which is supported by a self fulfilling forecast rule having the property of being immune to the lucas critique in this paper farmer s hypothesis is tested using data from hyperinflationary episodes it is believed that those episodes are suitable for testing this hypothesis because an agent who lives in a hyperinflationary environment usually faces frequent changes in policy regime the agent may thus choose a selffulfilling forecast rule which is immune to the lucas critique as a way of hedging against unanticipated policy regime switches the empirical results show mixed evidence on farmer s hypothesis during the hyperinflationary episodes studied

the monetary model of the exchange rate under hyperinflation new encouraging evidence abstract this paper suggests a new method of testing the rational expectations version of the monetary model of the exchange rate under hyperinflation that takes into account the stochastic non stationarity of the data involved the method is applied to money and exchange rate data from the german 1921 1923 hyperinflation and the results are very supportive of the model

misspecification versus bubbles in hyperinflation data monte carlo and interwar european evidence abstract this paper analyzes some new tests of the cagan hyperinflation money demand model which have several advantages relative to those in the literature they do not confound specification error with rational bubbles can be implemented with a linear procedure and are frequently able to detect periodically collapsing bubbles which have challenged existing tests after a monte carlo analysis the tests are applied to data from hyperinflations in austria germany hungary and poland evidence of misspecification is found for austria germany and hungary while the model without a rational bubble component appears to fit the data for poland

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

are stock returns predictable a test using markov chains this paper uses a markov chain model to test the random walk hypothesis of stock prices given a time series of returns a markov chain is defined by letting one state represent high returns and the other represent low returns the random walk hypothesis restricts the transition probabilities of the markov chain to be equal irrespective of the prior years annual real returns are shown to exhibit significant nonrandom walk behavior in the sense that low high returns tend to follow runs of high low returns in the postwar period

rational bubbles during poland s hyperinflation implications and empirical evidence abstract it has been argued that the polish hyperinflation at the end of the eighties was too excessive to be attributed to market fundamentals only in this paper a range of indirect non structural and structural tests for rational exploding deterministic and stochastic bubbles are carried out we adopt a new strategy based on the work of hall and sola 1993a which allows for the possibility of switching regimes in the time series properties of the data to allow for both indirect tests and structural tests for the presence of stochastic bubbles

cointegration and cagan s model of hyperinflation under rational expectations when money and prices are integrated of order two philip cagan s 1956 model of hyperinflation will give rise to two different levels of cointegration in most of the literature on the german hyperinflation one of these cointegrating relationships has been ruled out a priori by assuming that velocity shocks follow a random walk using data from the german hyperinflation the author finds this assumption to be unjustified based on a straightforward extension of the cointegrated var approach suggested by john y campbell and robert j shiller 1987 a method to evaluate the cagan model under rational expectations and no bubbles is proposed and implemented to the german data copyright 1993 by ohio state university press

the asymmetric effects of monetary policy a nonlinear vector autoregression approach this paper tests for nonlinearity in a standard vector autoregression including output prices and money supply using an estimation strategy that is consistent with a wide range of structural macroeconomic models shocks to the money supply are found to have stronger output effects and weaker price effects when output growth is initially low positive and negative monetary shocks are found to have nearly symmetric effects in addition there is some evidence that shocks of different magnitudes have asymmetric effects these results are consistent with the view that the aggregate supply curve is convex

revenue non equivalence between auctions with soft and hard closing mechanisms new evidence from yahoo abstract we use a unique dataset to examine the revenue differences between auctions with a hard close ending rule versus those with a soft close ending rule we find that selling items using the soft close rule increases the selling price by an amount between 25 and 44 or 13 20 percent over the hard close format one possible theoretical explanation for these results is that the hard close ending rule accommodates the practice of sniping which leads to a lower expected selling price we find empirically that a lack of experience could help to explain why in spite of the revenue differences some sellers select the hard close ending rule

investor sentiment and the stock market s reaction to monetary policy this paper shows that monetary policy decisions have a significant effect on investor sentiment the effect of monetary news on sentiment depends on market conditions bull versus bear market we also find that monetary policy actions in bear market periods have a larger effect on stocks that are more sensitive to changes in investor sentiment and credit market conditions overall the results show that investor sentiment plays a significant role in the effect of monetary policy on the stock market

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

the price is right but are the bids an investigation of rational decision theory the television game show the price is right is used as a laboratory to conduct a preference free test of rational decision theory in an environment with substantial economic incentives it is found that contestants strategies are transparently suboptimal in response to this evidence simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory further learning during the show reduces the frequency of strategic errors this is interpreted as evidence of bounded rationality finally there is no evidence that a concern for fairness significantly alters bidding behavior copyright 1996 by american economic association

the informational efficiency of experimental asset markets a fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders without a consensus as to reasonable empirical specifications tests of the hypotheses remain minimal or controversial in this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders we focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information our experimental results support four conclusions 1 market outcomes tend to evolve toward strong form informationally efficient equilibria whether or not futures markets and or event uncertainty are present 2 the presence of futures markets clearly stabilizes spot prices 3 the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there

mixed diffusion jump process modeling of exchange rate movements this study demonstrates that the mixed diffusion jump process is superior to the stable laws or a mixture of normals as a model of exchange rate changes for the british pound french franc and the we st german mark relative to the united states dollar the parameter value s for the mixed diffusion jump process are dependent on the monetary policy regime in force in the united states with the estimates for the franc and mark being intertemporally similar but different from the pound copyright 1988 by mit press

testing for rational inflationary bubbles the case of argentina brazil and israel in this paper it is examined whether the existence of rational bubbles can explain the dynamics of the price level during the argentine brazilian and israeli high inflations in the first half of the 1980s based on the cagan 1956 money demand model the west 1987 specification test finds evidence of rational inflationary bubbles in the three countries when the money supply is assumed to be exogenous however if endogeneity of money is taken into account there is no evidence of rational bubbles

a test for speculative bubbles in the sterling dollar exchange rate 1981 84 the u s dollar price of the u k pound sterling is tested for a speculative bubble defined as a period with a nonzero median in excessreturns a nonparametric procedure is developed which controls for data mining over the period of flexible exchange rates and finds a negative bubble in the excess return to holding sterling rather than dollar assets during the period 1981 84 possible interpretations arebootstrap equilibria rational bubbles nonsym metric fundamentals and nonrational expectations copyright 1986 by american economic association

bubble weak and strong hyperinflation theory and empirical evidence the monthly continuous inflation rate that maximizes the inflation tax revenue varies widely from 18 3 to 143 according to semi elasticity estimates for the german hyperinflation made by several authors cagan 1956 barro 1970 frenkel 1977 sargent 1977 goodfriend 1982 burmeister and wall 1987 christiano 1987 casella 1989 taylor 1991 engsted 1993 imrohoroglu 1993 michael et al 1994 those estimates lead one to conclude that during hyperinflation the german government could have obtained more tax revenue with lower inflation rates

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices

macroeconomic cycles and the stock market s reaction to monetary policy abstract this paper examines cyclical variation in the effect of fed policy on the stock market we find a much stronger response of stock returns to unexpected changes in the federal funds target rate in recession and in tight credit market conditions using firm level data we also show that firms that face financial constraints are more affected by monetary shocks in tight credit conditions than the relatively unconstrained firms overall the results are consistent with the credit channel of monetary policy transmission

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

a simple framework for analysing bull and bear markets bull and bear markets are a common way of describing cycles in equity prices to fully describe such cycles one would need to know the data generating process dgp for equity prices we begin with a definition of bull and bear markets and use an algorithm based on it to sort a given time series of equity prices into periods that can be designated as bull and bear markets the rule to do this is then studied analytically and it is shown that bull and bear market characteristics depend upon the dgp for capital gains by simulation methods we examine a number of dgps that are known to fit the data quite well random walks garch models and models with duration dependence we find that a pure random walk provides as good an explanation of bull and bear markets as the more complex statistical models in the final section of the paper we look at some asset pricing models that appear in the literature from the viewpoint of their success in producing bull and bear markets which resemble those in the data copyright 2002 john wiley sons ltd

on absolute auctions and secret reserve prices from a theory viewpoint the use of auctions with zero public reserve prices also called absolute auctions or of auctions with secret reserve prices is somewhat puzzling despite being common by allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret we show in a competitive environment that these auction formats may endogenously emerge we also analyze how buyers with various sophistications and sellers with various costs sort into the different formats thereby offering a range of testable predictions alternative approaches are reviewed

bidding behavior and experience in internet auctions abstract we study the role of experience in internet art auctions by analyzing repeated bidding by the same bidder in a unique longitudinal field dataset our results show that experience significantly lowers the level of bids suggesting that bidders change their bidding behavior throughout time participating in more than ten auctions brings down average bids by up to 26 we further test several possible explanations for the observed learning behavior and show that the change in bidding strategy is a result of a change in within auction behavior that is generated with experience our results are robust to concerns of endogenous participation as well as bidder fixed effects

pitfalls in testing for explosive bubbles in asset prices a number of studies e g robert j shiller 1981 olivier j blanchard and mark watson 1982 kenneth d west 1988 have argued that dividend and stock price data are not consistent with the market fundamentals hypothesis in which prices are given by the present discounted values of expected dividends these results have often been construed as evidence for the existence of bubbles or fads related arguments have been made with respect to gold bonds and foreign exchange a major problem with such arguments e g james hamilton and charles whiteman 1985 is that apparent evidence for bubbles can be reinterpreted in terms of market fundamentals that are unobserved by the researcher behzad t diba and herschel i grossman 1984 1988b and hamilton and whiteman 1985 have recommended the alternative strategy of testing for rational bubbles by investigating the stationarity properties of asset prices and observable fundamentals 1 in essence the argument for equities is that if stock prices are not more explosive than dividends then it can be concluded that rational bubbles are not present since they would generate an explosive component to stock prices 2 using unit root tests autocorrelation patterns and cointegration tests to implement this procedure diba and grossman 1988b p 529 state that the analysis supports the conclusion that stock prices do not contain explosive rational bubbles this paper shows that the above battery of tests is in fact unable to detect an important class of rational bubbles the point is demonstrated by constructing rational bubbles that appear to be stationary when unitroot tests are applied even though they are explosive in the relevant sense simulations show that when such bubbles are present stock prices will not appear to be more explosive than dividends on the basis of these tests even though the bubbles are substantial in magnitude and volatility the presence of rational bubbles in actual stock prices thus remains an open question

does monetary policy have asymmetric effects on stock returns this paper investigates whether monetary policy has asymmetric effects on stock returns using markov switching models different measures of a monetary policy stance are adopted empirical evidence from monthly returns on the standard poor s 500 price index suggests that monetary policy has larger effects on stock returns in bear markets furthermore it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear market regime

floating exchange rates expectations and new information abstract this paper analyzes the relationship between forward exchange rates future spot rates and new information a stochastic model of exchange rate determination is used to formally show how unanticipated changes in the exchange rate determinants or news affect the spot rate the empirical analysis indicates that new information plays an important role in explaining the market forecasting error or difference between the spot rate and the forward rate determined in the previous period

does self fulfilment of the inflation expectation exist abstractthis study examines the causal relationship between the actual and expected inflation in the u s using the bootstrap granger full sample causality test and sub sample rolling window estimation test to illustrate the self fulfilment of inflation expectations the full sample result indicates that there is a bidirectional causality between the actual and expected inflation showing the possibility of self fulfilment of inflation expectations which illustrates that inflation is driven by inflation expectation however considering structural changes in two series we find that the short run causal nexus between the actual and expected inflation using full sample data are fraudulent by adopting a time varying rolling window approach to revisiting the dynamic causal relationships this article identifies that the actual inflation has both positive and negative impacts on the expected inflation in distinct sub periods nevertheless inflation expectation exerts only negative effects on the actual inf

multi country tests for price level bubbles abstract flood and garber 1980 have examined data from the german hyperinflation to test for a price level bubble in this paper we extend this research to other episodes of hyperinflation by testing for a simultaneous bubble across countries we implement the conceptual experiment proposed by flood and garber to derive asymptotic distributions for the test statistics

structural var models for malaysian monetary policy analysis during the pre and post 1997 asian crisis periods this article conducts an in depth investigation into building a structural vector autoregression svar model and analysing the malaysian monetary policy considerable attention is paid to i the selection of foreign policy and target variables ii establish identifying restrictions and improve the estimates of impulse response functions iii assess the importance of intermediate channels in transmitting monetary policy mechanism and iv the way in which the 1997 asian financial crisis affected the working of monetary policy malaysia is an interesting small open economy to study because following this crisis the government imposed capital and exchange rate control measures the overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the malaysian black box in the pre crisis period domestic variables appear to be more vulnerable to foreign monetary shocks further the exchange rate played a significant role in transmitt

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

interest rates in the nordic countries evidence based on devaluation expectations over the period 1979 92 investments in danish and norwegian kroner in the euromarket have had an annual excess return of about 2 and 1 1 per cent compared to investments in the euromarket in foreign currencies assuming risk neutrality the subjective probability of a devaluation within the next month is derived from the excess returns on the euromarket these derived probabilities are found to be inconsistent with the actual number of devaluations that have taken place over this period so that the probability of devaluation has been significantly overrated for denmark and norway

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

transmission effects of the u s and china monetary policy shocks on the world this paper applies the markov switching model to analyse the transition probabilities and generalized method of moments gmm with newey west heteroscedasticity and autocorrelation consistent covar

dollar jump fears 1984 1992 distributional abnormalities implicit in currency futures options abstract deutsche mark and yen futures options over 1984 1992 and 1986 1992 respectively are examined for deviations from the lognormal assumption underlying standard option pricing models two methods are used an atheoretic skewness premium and daily estimates of moments using a model for pricing american foreign currency futures options under systematic exchange rate jump risk substantial variation over time is found in all moments including implicit skewness and kurtosis the implicit abnormalities predict future abnormalities in log differenced dm futures prices but not yen the peso problem implications do not explain standard rejections of uncovered interest parity

information cascades replication and an extension to majority rule and conformity rewarding institutions in a randomly determined order each agent was given an independent private signal about which of two states was selected by a random draw after receiving the private signal each agent made a publicly announced decision about the state thus at the time of personal decision each agent had a private signal and also knew the decisions of all preceding agents the experiments focused on three different types of organization 1 agents were rewarded according to whether their announced decision was right or wrong this individualistic institution is the one studied by anderson and holt aer 1997 their discovery of information cascades is replicated 2 agents were rewarded according to whether a majority of announced decisions were right or wrong under this majority rule institution the instance of information cascades is sharply reduced 3 agents are rewarded more according to whether their personal announced decision was the same as the majority decision than they were rewarded if their decision was correct this conformity rewarding institution is motivated by proceedings in which there is incentive to produce reports that conform to the reports of others substantial information cascades are observed

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

credibility crises the dollar in the early 1980s abstract from october 1979 to february 1985 forward rates systematically underpredicted the strength of the us dollar in this paper we argue that the explanation of this phenomenon is the existence of a peso problem we identify two peso problem periods the first one is related to the change in monetary regime in october 1979 and to the private sector doubts about the federal reserve commitment to lower money growth and inflation the second peso problem period is related to the private sector anticipation of the dollar s depriciation beginning in march 1985

monetary policy effectiveness and stock market cycles in asean 5 this article examines the asymmetric effects of monetary policy on real output in bull and bear phases of stock market in five asean economies malaysia singapore indonesia the philippines and thailand using the recently developed pooled mean group pmg technique stock market cycles are identified by employing markov switching models and the rule based nonparametric approach estimating the models using monthly data from 1991 1 to 2011 12 the results show that monetary policy measured by short term interest rate has a negative and statistically significant long run effect on real output in bull and bear market periods while the effects are stronger in bear periods than bulls in the short run there is no statistically significant relationship between monetary policy and real output these results are consistent with finance constraints capital market imperfection models that predict that monetary policy is more effective during bear periods than bulls