adaptive versus rational expectations and the fisher effect substantial controversy remains over the causes of interest rate fluctuations this controversy frequently focuses on the role of expected inflation the theoretical determinats of the nominal rate are examined usig the is lm as model and it is shown that the augmented fisher equation is sensitive to the expectations generating mechanism the model assumes that the nominal rate ceteris paribuschanges one for one with expected inflation the total impact however may take any value from zero to one the empirical analysis sequentially estimates reduced form equations based on adaptive and rational expectations the results confirm prior findings that nominal rates do not adjust one for one with inflation the results also yield some insight on the applicability of the assumption of rational versus adaptive expectations

consumption in developing countries tests for liquidity constraints and finite horizons adjustment programs in developing countries emphasize the importance of reducing fiscal deficits in order to improve aggregate saving and investment performance recent theoretical analyses associated with the ricardian equivalence proposition however suggest that changes in the level of public sector saving may be offset by a change in private saving the empirical relevance of this proposition depends among other things on the length of consumers horizons and on the extent to which households are liquidity constrained empirical tests of a consumption model for a sample of developing economies do not support the equivalence propositions owing to the prevalence of liquidity constraints copyright 1989 by mit press

aggregate savings financial intermediation and interest rate there has been considerable controversy about the role of financial factors as determinants of savings in developing countries this paper explores the importance of two such factors namely real interest rate and financial intermediation using pooled time series cross section data a model of savings is estimated for asia latin america and for the total sample particular attention is paid to the error structure in estimation the results suggest that pooling is not justified further there is no unequivocal support for the effect of either of the two factors some qualified support is found for asia but none for latin america copyright 1987 by mit press

ready for capital account convertibility abstract this paper investigates whether the impact of capital account convertibility on the long term volatility of economic growth depends on financial development it estimates a system of three simultaneous equations mean growth volatility of growth and financial development this allows for the study of both the impact of capital account liberalization on volatility as well as its direct impact on financial development results indicate that economies with low financial development fall prey to excess volatility arising from capital account openness while capital account openness itself has a significant positive impact on financial development the results are robust to alternative measures of financial development and volatility and to the removal of outliers

the power of cointegration tests versus data frequency and time spans 1 introduction in the empirical literature of cointegration analysis researchers often face the limitation of using relatively short time spans of data in many cases this is simply due to the absence of longer spans of data in other cases some equilibrium relationships have to be studied for certain time periods for instance when the models require a flexible exchange rate or a variable price of gold studies have to be undertaken for the flexible exchange rate period starting from the early 1970s or for the period since 1968 when the price of gold was allowed to fluctuate with the limits of relatively short time spans many researchers chose to use relatively high frequency data to conduct the studies such attempts have been criticized in the literature hakkio and rush 1991 argue that the frequency of observation plays a very minor role p 572 in exploring a cointegration relationship because cointegration is a long run property and thus we often need long spans of data to properly test it p 579 hakkio and rush s point is similar to the one made by shiller and perron 1985 that the length of the time series is far more important than the frequency of observation when testing for unit roots while those who criticize the collection of high frequency data to deal with the short time span problem advocate the use of long spans of data to test properly for cointegration their suggestion is sometimes misinterpreted as a support for using a small number of annual data for instance bahmani oskooee 1996 p 481 borrows hakkio and rush s 1991 p 572 testing a long run property of the data with 120 monthly observations is no different than testing it with ten annual observations to defend his use of annual data by saying that using annual data of over 30 years is as good as using quarterly or monthly data over the same period taylor 1995 p 112 claims that the deficiency of using less than 50 annual observations should be compensated by the fact that the data set spans nearly half a century i would like to point out that hakkio and rush s study has several limitations and therefore it may not be appropriate to cite the conclusions of the study for the cases beyond its limitations their study only allows the cointegrating residual to be a pure first order autoregressive arc 1 process and is limited to the single equation method of cointegration tests they show the results only for some extreme cases where the cointegrating residual for the monthly data is either very highly serially correlated nearly nonstationary and thus all the cointegration tests would have very low test power regardless of the frequency of the data or with a quite low coefficient of serial correlation thus all the cointegration tests can easily reject the null of no cointegration regardless of the frequency of the data the present paper is motivated by seeking the answers to the following questions i does the frequency of observation play a very minor role in exploring a cointegration relationship in the cases where the cointegrating residual is not nearly nonstationary ii can the validity of the conclusions of hakkio and rush 1991 based on a single equation method be extended to other popular cointegration tests and to more realistic cases where the models with higher lag orders are required when the cointegrating residual is generated with more noise than a pure first order autoregressive process iii while testing cointegration with 120 monthly observations could be no different than testing it with 10 annual observations as both cases are subject to very low test power does this warrant that using annual data of 30 to 40 years is as good as using quarterly or monthly data over the same period iv how serious would the problem of size distortion be for the use of a small number of annual observations this paper examines the power of cointegration tests versus frequency of observation and time spans as well as the small sample size distortions of the tests through the monte carlo experiments

an empirical study of the substitution of foreign for domestic savings in brazil this study aims to investigate the relations between the level of the real exchange rate foreign savings and domestic savings in brazil the appreciation of the domestic currency caused by financing the current account deficit reduces the expected profit rate in the tradable goods industry leading to a drop in domestic savings and the substitution of foreign for domestic savings an econometric analysis of the brazilian economy indicates a stable long term relation between the exchange rate and domestic savings and that relative devaluations of the real exchange rate positively and significantly affect domestic savings in 1994 2013 the estimations results persist even after the period is divided into two samples after tests showing the presence of a structural break in the model in 2002 in addition the results of the estimations performed on the two samples confirm the presence of substitution of foreign for domestic savings 2014 national association of postgraduate centers in economics anpec production and hosting by elsevier b v all rights reserved

conventional contracts intentional behavior and logit choice equality without symmetry abstract when coordination games are played under the logit choice rule and there is intentional bias in agents non best response behavior we show that the egalitarian bargaining solution emerges as the long run social norm without intentional bias a new solution the logit bargaining solution emerges as the long run norm these results contrast with results under non payoff dependent deviations from best response behavior where it has previously been shown that the kalai smorodinsky and nash bargaining solutions emerge as long run norms we complement the theory with experiments on human subjects results of which suggest that non best response play is payoff dependent and displays intentional bias this suggests the egalitarian solution as the most likely candidate for a long run bargaining norm

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

are there cultural effects on saving some cross sectional evidence why are there such large differences in saving rates across countries conventional economic analyses have not been successful in explaining international saving differences so economists have sometimes suggested that national saving differences may be explained by cultural differences this paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to canada from different cultures using data from the canadian survey of family expenditures we find no evidence of cultural effects on saving

new evidence on the ricardian equivalence theorem a multicointegration approach this paper derives major theoretical constructs which underlie richardian equivalence and using multicointegration methodology empirically tests whether they bear out results indicate that government spending and revenues are cointegrated however the cointegrating scalar is less than one therefore in order for government to obey its intertemporal budget constraint debt and government revenue must be multicointegrated they are not additional evidence indicates that saving and debt may be weakly cointegrated the findings suggest that failure of richardian equivalence may be due to public rather than private sector failure

capital flows and saving in latin america and asia a reinterpretation abstract both theory and the empirical evidence for a broad range of countries have identified a negative relationship between domestic and foreign saving still based on the experience of the 1990s a popular view has emerged that domestic and foreign saving are positively related in asia and negatively related in latin america we argue that this popular discussion does not discriminate between trends in domestic saving which are very different in the two regions and the cyclical component of saving which is linked to capital flows we show that when trend and cyclical components of domestic saving and capital flows are properly taken into account the two regions do not differ in the short run response of domestic saving to capital inflows we conclude that the main differences pertain to the long run behavior of saving rates which are driven by trends in demographic factors per capita gdp and other factors that have little to do with fluctuations in capital flows

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

evolutionary implementation and congestion pricing we consider an implementation problem faced by a planner who manages a roadway network the problem entails both hidden information and hidden actions we solve the planner s problem by introducing a new class of mechanisms and a new notion of implementation the mechanisms called price schemes attach transfers to the available routes they do not involve direct revelation the method of implementation is evolutionary requiring that players who follow any reasonable myopic adjustment process eventually learn to behave as the planner desires we show that efficient behaviour can be guaranteed using simple decentralized price schemes

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

uncoupled dynamics do not lead to nash equilibrium it is notoriously difficult to formulate sensible adaptive dynamics that guarantee convergence to nash equilibrium in fact short of variants of exhaustive search deterministic or stochastic there are no general results of course there are many important interesting and well studied particular cases see the books of jorgen w weibull 1995 fernando vegaredondo 1996 larry samuelson 1997 drew fudenberg and david k levine 1998 josef hofbauer and karl sigmund 1998 h peyton young 1998 and the discussion in section iv below here we provide a simple answer to the question why is that so our answer is that the lack of a general result is an intrinsic consequence of the natural requirement that dynamics of play be uncoupled among the players that is the adjustment of a player s strategy does not depend on the payoff functions or utility functions of the other players it may depend on the other players strategies as well as on the payoff function of the player himself this is a basic informational condition for dynamics of the adaptive or behavioral type it is important to emphasize that unlike the existing literature see section iv we make no rationality assumptions our dynamics are not best reply dynamics or better reply or payoffimproving or monotonic and so on what we show is that the impossibility result is due only to an informational requirement that the dynamics be uncoupled

the beveridge nelson decomposition of economic time series another economical computational method abstract this note describes a simple and an economical computational procedure for generating the permanent cyclical decomposition of economic time series proposed by beveridge and nelson 1981 our procedure is a more complete alternative than the method suggested by cuddington and winters 1987

multicointegration and sustainability of fiscal practices i introduction governments are charged with the responsibility of crafting national budgets over time budgets tend to move between balance surplus and deficit these fluctuations result from the fact that all too often a government makes financial decisions in one year that have implications for spending commitments and revenue streams a number of years down the road thus responsible government budgeting involves examining the budget position over time that is engaging in intertemporal budgeting economists generally utilize two criteria to assess the intertemporal budget s sustainablity does the government run persistent deficits if so what is the resulting level of debt are these two criteria sufficient to make predictions regarding budget sustainability recent work by bohn 1995 1998 and ball et al 1998 suggests that budgets are far too complicated to be evaluated with respect to deficits and debt alone these authors have shown that persistent deficits and accumulation of debt does not necessarily imply that the debt is unmanageable and hence fiscal processes unsustainable the implication of their work is that the standard approach to testing whether government adheres to its intertemporal budget constraint cointegration analysis does not provide sufficient criteria for determining whether the fiscal process is truly sustainable consequently in this article we develop a more encompassing set of criteria under more realistic assumptions for determining whether a country exhibits a sustainable budgeting process our criteria for sustainability are based the multicointegration approach first presented by granger and lee 1989 1990 and further developed in engsted gonzalo and haldrup 1997 and haldrup 1998 the budgeting practices of 15 industrialized countries belgium canada denmark finland france great britain greece italy the netherlands norway portugal spain sweden switzerland and the united states are evaluated in terms of the criteria our sample spans the modern era 1960 98 we extend the intertemporal budgeting literature by employing the multicointegration framework to develop the appropriate policy responses to deficits and debt accumulation and to test for their presence the methodology assesses both the stock and flow relationships that should characterize sustainable fiscal processes when the data are nonstationary cointegration between the spending revenue flow relationship is the first component of our criteria cointegration between the flow of revenue spending and the stock of debt is the second jointly these conditions characterize multicointegration between government spending and revenue in the multicointegration case the system is characterized by a complex stock flow equilibrium relationship that is not uncommon in intertemporal models of economic behavior such a relationship is typically associated with issues of optimal control where the levels and rates of change of the variables making up the system are determinants of the policy response multicointegration can ensure that a country s budgeting strategy is sustainable in bad states of nature that is when the rate of economic growth falls short of the real interest rate on sovereign debt 1 bohn 1995 and ball et al 1998 point out that existing theoretical models that underpin traditional sustainability tests are too simple specifically bohn 1995 shows that the sustainability of imbalances in a stochastic setting involves satisfying an intertemporal budget constraint and a transversality condition that differs from that implicit in simple deterministic models the transversality condition requires that the limit of the debt discounted at a rate that is a function of the probability distribution of future debt and the marginal rate of substitution between present and future consumption be zero this correct discounting is critical in economies where the rate of growth has been higher than the real interest rate

time consistent policy and persistent changes in inflation abstract this paper presents a model of dynamically consistent monetary policy that explains changes in inflation over time in the model as in the postwar united states adverse supply shocks trigger increases in inflation high inflation persists until a tough policymaker causes a recession to disinflate the paper also proposes an approach to selecting a unique equilibrium in infinite horizon models of monetary policy

government budget deficits and trade deficits are present value constraints satisfied in long term data abstract we test whether long term data from the u s and u k are consistent with the intertemporal government budget constraint and external borrowing constraint both individually and simultaneously a very strong test is provided by our focus on whether the present value constraints pvcs continue to hold despite unusual events such as wars that cause a structural break in the short run dynamic behavior of the variables we find that the pvcs hold over the whole sample period the data also indicate that the pvcs continue to hold following events that cause a structural break in the short run dynamics

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

the current account in developing countries a perspective from the consumption smoothing approach according to the consumption smoothing view a high degree of capital mobility implies that agents are able to fully smooth their consumption in the face of shocks this article develops aframework to test whether indeed the current account in developing countries acts as a buffer to smooth consumption in the face of shocks to national cash flow which is defined as output less investment less government expenditure using vector autoregression analysis we estimate the optimal consumption smoothing current account with data from a sample of forty five developing countries we find that for a majority of the countries the hypothesis offull consumption smoothing cannot be rejected suggesting that capital mobility may after all be quite high in this group of countries

selecting efficient correlated equilibria through distributed learning abstract a learning rule is completely uncoupled if each player s behavior is conditioned only on his own realized payoffs and does not need to know the actions or payoffs of anyone else we demonstrate a simple completely uncoupled learning rule such that in any finite normal form game with generic payoffs the players realized strategies implements a socially optimal coarse correlated hannan equilibrium a very high proportion of the time that is the empirical frequency associated with the players collective behavior will be consistent with a socially optimal coarse correlated equilibrium a variant of the rule implements a socially optimal correlated equilibrium a very high proportion of the time

fiscal policy and the mehra prescott puzzle on the welfare implications of budget deficits when real interest rates are low historically average real returns on u s government debt have been far below the rate of economic growth allowing the u s government to roll over its debt at a rather low cost at the same time the rate of return on capital has generally been above the growth rate suggesting that the u s economy is dynamically efficient the paper shows that the welfare implications of budget deficits in this scenario depend critically on why interest rates have been so low if the government can offer low returns on its debt because of some unique ability to create default free claims persistent primary budget deficits may be unproblematic but if low interest rates are due to high risk aversion policies that exploit the low cost of government debt to run frequent budget deficits will impose significant risks on future taxpayers in essence safe government debt is safe for the debt holders but it is very risky for the taxpayers who are implicitly taking a short position in the safe security

learning efficient nash equilibria in distributed systems abstract an individual s learning rule is completely uncoupled if it does not depend directly on the actions or payoffs of anyone else we propose a variant of log linear learning that is completely uncoupled and that selects an efficient welfare maximizing pure nash equilibrium in all generic n person games that possess at least one pure nash equilibrium in games that do not have such an equilibrium there is a simple formula that expresses the long run probability of the various disequilibrium states in terms of two factors i the sum of payoffs over all agents and ii the maximum payoff gain that results from a unilateral deviation by some agent this welfare stability trade off criterion provides a novel framework for analyzing the selection of disequilibrium as well as equilibrium states in n person games