money anticipated changes and policy effectiveness the lucas sargent wallace l s w proposition states that expected policy changes have no influence on real economic variables even in the short run see robert lucas 1972 and thomas sargent and neil wallace 1975 one form of empirical test of the l s w proposition the neutrality proposition began with robert barro s 1977 1978 seminal articles supporting the neutrality proposition however more recent papers including those by david small 1979 john makin 1982 and frederic mishkin 1982a b have reexamined the relationships between anticipated and unanticipated money vs output unemployment and inflation and have found evidence suggesting that anticipated monetary changes do have real effects all of the above cited studies use expectations procedures which estimate for example a money growth equation over the entire period under consideration however this approach assumes that when expectations are being formed at the beginning of the period economic agents have the relevant information for the entire period in this note i reexamine the impact of expected vs unexpected monetary changes focusing on the informational restrictions actually faced by economic agents when formulating expectations the structure of the model used here is similiar to the models of barro and mishkin a measure of real output is assumed to be a function of a policy variable and a vector of predetermined variables the policy variable can be decomposed into anticipated and unanticipated components algebraically

strategic interactions and contagion effects under monetary unions this paper applies game theory and a cost benefit analysis to study voluntary exits and contagion effects in countries joined to a monetary union the paper looks at two non core or periphery countries of a large union and examines the role of structural asymmetries and strategic interactions as determinants of equilibrium outcomes following both country specific and common shocks the paper finds that under almost symmetry between countries country specific shocks are never associated with multiple equilibria and if large enough can spread to other countries leading to contagion by contrast common shocks are seen to sustain multiple equilibria if almost symmetric countries are considered and to have implications similar to those found in the country specific case if large structural asymmetries are admitted

determinants of house price a decision tree approach the hedonic based regression approach has been utilised extensively to investigate th relationship between house prices and housing characteristics however this approach is subject t criticisms arising from potential problems relating to fundamental model assumptions an estimation such as the identification of supply and demand market disequilibrium the selectio of independent variables the choice of functional form of hedonic equation and marke segmentation this study introduces and utilises an alternative approach the decision tre approach which is an important statistical pattern recognition tool using the singapore resal public housing market as a case study the article demonstrates the usefulness of this techniqu in examining the relationship between house prices and housing characteristics identifying th significant determinants of housing prices and predicting housing prices the built tree show that homebuyers are more concerned about the basic housing characteristics of two and three r

money and prices evidence from the g7 countries this paper examines the exogeneity of money and prices within a money demand vector error correction model the exogeneity of the variables is central to several buffer stock models however the paper makes two modifications to the traditional approach the first is to explicitly acknowledge the importance of the supply of money function by including the function alongside its demand counterpart the second is to estimate the behaviour of the nominal sector and real sector simultaneously overall the results from the g7 countries suggest that the concerns raised by buffer stock models are relevant

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

structural analysis of cointegrating vars this survey uses a number of recent developments in the analysis of cointegrating vector autoregressions vars to examine their links to the older structural modelling traditions using autoregressive distributed lag ardl and simultaneous equations models sems in particular it emphasizes the importance of using judgement and economic theory to supplement the statistical information after a brief historical review it sets out the statistical framework discusses the identification of impulse responses using the generalized impulse response functions reviews the analysis of cointegrating vars and highlights the large number of choices applied workers have to make in determining a specification in particular it considers the problem of specification of intercepts and trends and the size of the var in more detail and examines the advantages of the use of exogenous variables in cointegration analysis the issues are illustrated with a small u s macroeconomic model

a constant quality price index for resale public housing flats in singapore largely because of the significant societal and economic aspects of public housing in singapore the current resale price index is published regularly by the housing and development board hdb based on average transaction prices this hdb index does not control for a shift in the mix of public housing resale flats transacted this paper looks into the usefulness of the current hdb resale price index that is reflective of pure price appreciation across time adopting the varying parameter technique a constant quality hdb resale price index is constructed instead for the period between january 1997 and june 2000 the usefulness of a constant quality resale price index is evaluated using three assessment criteria first through a series of comparative studies between a constant quality hdb resale price index and other resale price indices it is found that the constant quality resale price index provides a better indication of pure price appreciation secondly the parameters of price determinants are fo

fiscal institutions fiscal policy and sovereign risk premia in emu we investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest rate spreads of eurozone countries deficits significantly increase risk premia measured by relative swap spreads the effect of deficits is significantly lower under emu this effect partly results from neglecting the role of fiscal institutions after controlling for institutional changes fiscal policy remains a significant determinant of risk premia in emu better institutions are connected with lower risk premia furthermore deficits matter less for risk premia in countries with better institutions markets acknowledge that better institutions reduce fiscal difficulties rendering the monitoring of annual developments less important

monetary integration and the cost of borrowing with european monetary union emu there was an increase in the adjusted spreads of euro area sovereign securities over germany corrected from the foreign exchange risk causing a lower than expected fall in borrowing costs the objective of this paper is to study the reasons for this increase and in particular whether the change in the price assigned by markets was due to domestic factors credit risk and or market liquidity or to international risk factors the empirical evidence suggests that it may have been a change in the market assessment of domestic both liquidity and default risk rather than international factors that caused the observed increase in adjusted spreads with monetary integration even though since market size scale economies have increased since emu their effect differs according to the size of the market

estimating shocks and impulse response functions this paper examines the issue of how to identify the shocks in a cointegrated var when the following assumptions are made the variables can be classified as endogenous or exogenous there are as many cointegrating relations as endogenous variables the cointegrating vectors are identified and they contain at least one exogenous variable it is shown that with these assumptions it is possible to identify the shocks without the use of further restrictions on the covariance matrix of the disturbances or the short run dynamics if the long run parameters are known the whole model can be estimated by ols the analysis is extended to allow the var to have both stationary and non stationary variables an illustration of the method is provided using the traditional benchmark var model involving us data on output prices interest rates and money a liquidity effect is not found using this var methodology

social classes and state behavior abstract van winden 1983 developed the interest function approach to the study of politico economic phenomena it starts from the familiar premise that economic agents have preferences with regard to the results of economic and political processes this paper develops a behavioral model with four classes of participants in the system and attempts to estimate the behavioral influences of these groups on the state

the applicability of the traditional theory of economic policy abstract the traditional theory of economic policy requires targets instruments an empirical economic model and a social welfare or criterion function to be specified in order to derive the optimal economic policy empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner subject to interference from political factors this survey addresses the problems of specifying estimating and applying an economic model when economic policy is following a path specified by a reaction function attention is paid to rational expectations the lucas critique and the policy neutrality proposition lack of knowledge of the policy maker s objective function poses the most serious difficulty when applying the theory of economic policy various methods of determining this function are reviewed and the possibility that policy makers might be satisficing is discussed the role played by political factors is considered in the light of the public choice literature

public housing in singapore interpreting quality in the 1990s while writings exist on various aspects of public housing in singapore recent developments in the 1990s have not yet been given any serious academic attention our intention in this paper is to fo

investigation of the causal relationships between combustible renewables and waste consumption and co2 emissions in the case of tunisian maritime and rail transport abstract this study investigates the dynamic causal links between carbon dioxide co 2 emissions real gross domestic product gdp combustible renewables and waste consumption and maritime and rail transport in tunisia spanning the period 1980 2011 the autoregressive distributed lag ardl approach and granger causality tests are employed to examine the short and long run relationships between variables the empirical results suggest a bidirectional short run causality between co 2 emissions and maritime transport and a unidirectional causality running from real gdp combustible renewables and waste consumption rail transport to co 2 emissions the long run estimates reveal that real gdp contributes to the decrease of co 2 emissions while combustible renewables and waste consumption and maritime and rail transport have a positive impact on emissions our policy recommendation is that tunisia should use more combustible renewables and waste energy and increase the number of passenger s rail and maritime transport in order to motivate economic activities however the level of renewables energy required to reduce co 2 emissions caused by transport sector is still very weak

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

the keynesian and political determinants of unbalanced budgets u s fiscal policy from eisenhower to reagan the political business cycle proposition that politicians manipulate fiscal policy for political advantage is largely untested more often than not such manipulation is only assumed to occur on the basis of observed movements in inflation and unemployment and the few direct tests of the manipulation hypothesis are characterized by limited consideration of the full possibilities for political influence inadequate control for nonpolitical stabilization policy and inconsistent results this paper constructs several models of political fiscal policy incorporates them into a simple model of keynesian stabilization policy and tests the combined models using u s budget surplus deficit data from fy54 to fy83 the results provide little support for either the electoral motivation or partisan differences interpretations of the political business cycle the implications of these findings for the political business cycle literature long term economic management and deficit directed proposals for institutional reform are discussed

size matters for liquidity evidence from emu sovereign yield spreads abstract the objective is to study the relative importance of domestic components of emu sovereign yield spreads since the start of monetary integration the results indicate a change in the market value of liquidity as measured by market size after emu

heterogeneity of the determinants of euro area sovereign bond spreads what does it tell us about financial stability abstract in this paper we assess the movements of euro area sovereign bond yield spreads vis a vis the german bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions the determinants we use are grouped into domestic and euro area aggregates thus allowing us to derive results on their relative explanatory power and compare them across time and the spectrum of countries we find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries furthermore we find that variables reflecting investment confidence conditions and perceptions for the upcoming economic activity are significant determinants and their significance remains to a large extent even when controlling for fiscal variables

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

inter industry wage differentials in eu countries what do cross country time varying data add to the picture this paper documents the existence and main patterns of inter industry wage differentials across a large number of industries for 8 eu countries belgium germany greece hungary ireland italy netherlands and spain at two points in time in general 1995 and 2002 and explores possible explanations for these patterns the analysis uses the european structure of earnings survey ses an internationally harmonised matched employer employee dataset to estimate inter industry wage differentials conditional on a rich set of employee employer and job characteristics after investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials a hypothesis which cannot be accepted the paper investigates the role of institutional industry structure and industry performance characteristics in explaining inter industry wage differentials the results suggest that inter industry wage differentials are consistent with rent sharing mechanisms and that rent sharing is more likely in industries with firm level collective agreements and with higher collective agreement coverage jel classification j31 j41 j51

the effect of house energy efficiency programs on the extensive and intensive margin of lower income households investment behavior abstract this paper examines the biggest house energy efficiency retrofit support program in greece which ran during 2011 2015 and approximately fifty thousand households participated we take advantage of an exogenous policy change resulting in cost reduction for households that occurred while the program was running this change substantially increased the subsidy rate for lower income households we find that this effective cost reduction increased the participation rate extensive margin we add to the literature on retrofits by further showing that this change increased substantially the investment amount intensive margin of these lower income households detailed data on a sub sample of households reveal that this increase was driven primarily by window replacement and thermal insulation investments

sovereign risk premia the link between fiscal rules and stability culture abstract there is a growing empirical literature studying whether permanent constraints on fiscal policy such as fiscal rules reduce sovereign risk premia nevertheless it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters in our analysis of european bond spreads before the financial crisis we shed light on this issue by employing several types of stability preference related proxies these proxies refer to a country s past stability performance government characteristics and survey results related to general trust we find evidence that these preference indicators affect sovereign bond spreads and dampen the measurable impact of fiscal rules yet the interaction of stability preferences and rules points to a particular potential of fiscal rules to restore market confidence in countries with a historical lack of stability culture

the time varying integration of euro area government bond markets abstract we derive a model in which a standard international capital asset pricing model icapm for government bonds is nested within an icapm with impediments to invest in the local government bond markets excess returns or risk premiums are then driven by a country specific or idiosyncratic stochastic factor on top of the common factor which has a time varying idiosyncratic impact on the premiums with this model we investigate the financial integration of government bond markets over time through two channels first we allow for gradual convergence from the full icapm with impediments to the standard model through the vanishing of the idiosyncratic factors second we allow for gradual equalization of the country specific impacts of the common factor state space methods are used to estimate the model with weekly government bond risk premiums for belgium france italy germany and the netherlands over the period 1995 2009 our results suggest first that the idiosyncratic factors were almost eliminated by 2006 in all countries but italy but then reappeared due to the financial crisis that started in 2007 second the country specific exposures to the common international risk factor have converged across countries with no setback during the crisis

presidential politics budget deficits and monetary policy in the united states 1960 1976 this paper has focused on the extent to which the traditional tools of macroeconomic management in the united states monetary and fiscal policy have contributed to a political business cycle regardless of whether politicians can successfully influence real economic variables to their own ends the evidence presented here suggests that they tried and that they enjoyed some at least indirect aid from their independent monetary authorities in doing so several major conclusions emerge

high yields the spread on german interest rates this paper is a first attempt at evaluating the determinants of the interest rate differentials on government bonds between high yielders namely italy spain and sweden and germany in particular we concentrate on daily frequencies where the relevance of economic fundamentals is rather limited and address the question of the relative importance of local and global factors in the determination of such spread we identify and measure three components of total yield differentials one due to expectations of exchange rate depreciation which we call the exchange rate factor another which reflects the market assessment of default risk and a last one due to the different taxation treatment of long term yields

yield spreads on emu government bonds government bond spreads we provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the united states are more pronounced for bonds issued by italy and spain liquidity factors play a smaller role so policies meant to increase financial market efficiency do not appear sufficient to deliver a seamless bond market in the euro area the risk of default is a small but important component of yield differentials movements which signal market perceptions of fiscal vulnerability impose market discipline on national fiscal policies and may be reduced only by further convergence in debt ratios lorenzo codogno carlo favero and alessandro missale

the role of macroeconomic instability in public and private capital accumulation and growth the case of turkey 1963 1999 this study investigates the empirical relationship s between macroeconomic instability public and private capital accumulation and growth in turkey over the period 1963 1999 time series econometric techniques such as cointegration and impulse response analysis are used the results of this paper suggest that the chronic and increasing macroeconomic instability of the turkish economy has seriously affected her capital formation and growth furthermore the turkish experience indicates that chronic macroeconomic instability seems to be a serious impediment to public investment especially to its infrastructural component and shatters or even reverses the complementarity between public and private investment in the long run

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

the role of economic theory in modelling the long run this argues for a closer link between the modelling of the long run relations in applied economics and the intertemporal equilibrium notion from economic theory this abstract was borrowed from another version of this item

how dynamic consumer response competitor response company support and company inertia shape long term marketing effectiveness long term marketing effectiveness is a high priority research topic for managers and emerges from the complex interplay among dynamic reactions of several market players this paper introduces restricted policy simulations to distinguish four dynamic forces consumer response competitor response company inertia and company support a rich marketing dataset allows the analysis of price display feature advertising and product line extensions the first finding is that consumer response differs significantly from the net effectiveness of product line extensions price feature and advertising in particular net sales effects are up to five times stronger and longer lasting than consumer response second this difference is not due to competitor response but to company action for tactical actions price and feature it takes the form of inertia as promotions last for several weeks for strategic actions advertising and product line extensions support by other marketing instruments greatly enhances dynamic consumer response this company action negates the postpromotion dip in consumer response and enhances the long term sales benefits of product line extensions feature and advertising therefore managers are urged to evaluate company decision rules for inertia and support when assessing long term marketing effectiveness

towards a politico economic theory of social security social security which will be taken here in its wide european sense not only encompassing public pension schemes but also other income transfers such as to unemployed sick and disabled persons and to widows and orphans nowadays figures large among government outlays after its continuous and fast expansion over especially the past two decades see e g saunders and klau 1985 and table 0 1 accordingly social security is receiving increasing attention in the economic profession recent discussions have focused on the effects of social security on capital accumulation and on its ability to achieve a more desirable distribution of income in these studies social security programs are typically treated as exogenously determined little attention has hitherto been paid to the explanation of social security policies

was it different the second time an empirical analysis of contagion during the crises in greece 2009 15 over the period between end 2009 and end 2015 greece experienced two discernible financial crises this article undertakes a correlation analysis of risk premia to investigate the nature and extent of contagion from these crises to other selected euro zone countries a commonly expressed view is that the effects of the second crisis were more muted since the systemic risks were seen by markets as being lower however using a rolling correlation model a dcc garch model and a t copula model we find that this is not the case broadly speaking the contagion effects of the second crisis were at least as large as those associated with the first one

is tourism an engine for economic recovery theory and empirical evidence abstract the purpose of this study is to examine the causal relationships between tourism development and economic growth for this purpose the dumitrescu and hurlin 2012 technique was employed to analyze the casual link between tourism development and economic growth in seven european countries the results showed that there is bidirectional causality between growth in tourism receipts and economic growth suggesting that economic growth and tourism development are interdependent and that tourism development stimulates economic growth and vice versa in these countries theoretical and practical implications are discussed within the realms of growth conservation feedback and neutrality hypotheses

the european sovereign debt crisis the origin and propagation of the european sovereign debt crisis can be attributed to the flawed original design of the euro in particular there was an incomplete understanding of the fragility of a monetary union under crisis conditions especially in the absence of banking union and other european level buffer mechanisms moreover the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis after diagnosing the situation we consider reforms that might improve the resilience of the euro area to future fiscal shocks

the immediate effect of monetary union on eu 15 sovereign debt yield spreads yield spreads corrected for exchange rate risk over 10 year german securities of european union eu countries that did not join economic and monetary union emu experienced an average decrease of 14 20 basis points during the first 3 years after the beginning of currency union conversely euro area countries adjusted spreads registered an average rise of 11 98 basis points in the same period this article examines the elements a possible change in the relative importance of domestic or international risk factors behind these results using both panel estimations in the two groups of countries and a country by country specification in each of them

the greek financial crisis growing imbalances and sovereign spreads abstract we discuss the origins of the greek financial crisis as manifested in the growing fiscal and current account deficits since euro area entry in 2001 we then extend a model typically used to explain risk premia to assess the extent to which credit ratings captured these premia next we estimate a cointegrating relationship between spreads and their long term fundamental determinants and compare the spreads predicted by this estimated relationship with actual spreads we find that spreads were significantly below what would be predicted by fundamentals from end 2004 up to the middle of 2005 by contrast since may 2010 actual spreads have exceeded predicted spreads by some 400 basis points

time varying volatility default and the sovereign risk premium this paper studies how changes in the volatility of aggregate income aect the sovereign spread i document a positive correlation between sovereign spreads and aggregate income volatility for a set of european economies then i propose a model with endogenous sovereign spread and time varying volatility to understand this fact i nd that volatility changes aect savings and the sovereign spread however the impact of volatility shocks is state dependent when the economy is relatively rich an increase in volatility generates precautionary savings instead when the economy is relatively poor an increase in volatility induces an increase in foreign debt and a higher spread this mechanism is absent in standard business cycle models and only appears because of the default option moreover this mechanism can generate a substantial variability of spreads only due to volatility shocks in this way the model is able to rationalize the positive correlation between sovereign spreads and volatility observed in the data

presidential influence on the federal reserve in the 1970 s this research examined presidential influence on federal reserve monetary policy in the 1970s a reaction function for the change in the federal funds rate was estimated and then checked to determine whether that reaction function shifted at politically important points the two political influences studied were elections and administration the federal reserve did not appear to manipulate the money supply in 1972 to aid president nixon s reelection the reaction function shifted between the nixon and ford administrations it did not shift with the ascension of carter and it did not shift with the replacement of chairman arthur burns by chairman william miller

macroeconomic policy evaluation and optimal control theory a critical review of some recent developments abstract this survey addresses the recent literature on the application of optimal control theory and game theory to macroeconomic policy evaluation and design this literature focuses on strategic interactions between governments and private agents engaged in dynamic non cooperative games and emphasizes such issues as precommitment credibility and reputation as important and endemic aspects of optimal policy design a dominant theme is the problem of dynamic inconsistency and the inferiority of an equilibrium in single stage full information games without commitment this may be alleviated in repeated games involving reputation effects and threat strategies designed to coerce rivals into pursuing particular strategies and to sustain a sequential equilibrium the type and characteristics of a sequential equilibrium also depend importantly upon the information structure conditioning players beliefs under uncertainty included here are separating and pooling equilibria involving notions of learning signalling and information revelation additional dimensions exist in stochastic systems which introduce other forms of uncertainty optimal control and game theory have also been applied to international macroeconomic policy design with emphasis on the potential costs and benefits of non cooperative and cooperative behaviour between countries and problems of international policy coordination

oil price shocks and emu sovereign yield spreads abstract this study examines for the first time the relationship among the oil price shocks and the sovereign yield spreads in the emu which is collectively the largest oil importer of the world in a time varying environment in particular we examine the time varying correlation between oil price shocks and the 10 year sovereign yield spread of core and periphery countries in the emu by employing a scalar bekk framework the main findings reveal that the correlations between sovereign yield spreads and oil price shocks are indeed time varying and are influenced by specific economic and geopolitical events that took place during the study period furthermore even though the correlation patterns are constantly low or zero prior to the great recession a change is revealed in the post 2008 period when correlations become moderate and more volatile finally we do not observe noteworthy differences in the correlation behaviour between core and periphery countries to different oil price shocks the findings of this study are particularly useful and provide valuable information to marketplace participants

a multivariate latent factor decomposition of international bond yield spreads a factor analysis of long term bond spreads is performed by decomposing international interest rate spreads into national and global factors the factors are latent and are assumed to have garch type specifications as well as exhibiting serial dependence an indirect estimator is used to compute estimates of the unknown parameters the sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the kalman predictor the factor model is applied to weekly data on long bond spreads between five countries australia japan germany canada and the uk and the usa over the period 1991 to 1999 the resulting factor decomposition is used to examine the international investor s optimal portfolio decision in a mean variance framework copyright 2000 john wiley sons ltd

price discovery between private and public housing markets public and private housing markets are usually differentiated in terms of price regulations and policies but they are not necessarily segmented any integration as opposed to segmentation between private and public markets implies that the prices of private housing are interrelated with the prices of public housing determined in the open market if so information revealed in one market will be pertinent for making inferences on prices in the other market this paper addresses the price discovery or relation between public and private housing in view of singapore s substantial public housing programme that has an actively traded secondary market implications for the direction of price causality and upward mobility for households between housing price strata are examined

transactions costs and nonlinear adjustment in real exchange rates an empirical investigation eolquilibrium models of real exchange rate determination in the presence of transactions costs imply a nonlinear adjustment process toward purchasing power parity ppp conventional cointegration tests which ignore the effect of transactions costs may be biased against the long run ppp hypothesis our results using both monthly data for the interwar period and annual data spanning two centuries clearly reject the linear framework in favor of an exponential smooth transition autoregressive process the systematic pattern in the estimates of the nonlinear models provides strong evidence of mean reverting behavior for ppp deviations and helps explain the mixed results of previous studies

profit strategy of greek banks cross subsidization and diversification versus complementarity abstractthis study analyses the profit strategy employed by banks in greece using dynamic panel data techniques and a data set which includes proprietary supervisory data covering the whole greek commercial banking system from 2004 to 2011 we provide evidence that banks use interest and non interest income non ii as substitutes rather than complements with non ii representing an indirect competition instrument by the more efficient banks used in place of direct competition with their peers through prices on loans and deposits this behaviour is explained by further decomposing the non ii into the relatively stable fees component and the volatile trading income moreover we provide evidence that the net interest income is primarily affected by the banks market power and their operating costs while more efficient banks exploit their core deposit base to lever their non ii finally macroeconomic developments affect both income components which are found to be procyclical with respect to economic ac

a long run structural macroeconometric model of the uk a new modelling strategy that provides a practical approach to incorporating long run structural relationships suggested by economic theory in an otherwise unrestricted var model is applied to construct a small quarterly macroeconometric model of the uk estimated over 1965q1 1999q4 in nine variables domestic and foreign outputs prices and interest rates oil prices the nominal effective exchange rate and real money balances the aim is to develop a model with a transparent and theoretically coherent foundation tests of restrictions on the long run relations of the model are presented the dynamic properties of the model are discussed and monetary policy shocks identified

downward nominal and real wage rigidity survey evidence from european firms it has been well established that the wages of individual workers react little especially downwards to shocks that hit their employer this paper presents new evidence from a unique survey of firms across europe on the prevalence of downward wage rigidity in both real and nominal terms the authors analyse which firm level and institutional factors are associated with wage rigidity the results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models e g efficiency wage theory insider outsider theory the analysis also finds that wage rigidity depends on the labour market institutional environment collective bargaining coverage is positively related with downward real wage rigidity measured on the basis of wage indexation downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations

determinants of sovereign bond yield spreads in the emu an optimal currency area perspective in the light of the recent financial crisis we take a panel cointegration approach that allows for structural breaks to the analysis of the determinants of sovereign bond yield spreads in nine economies of the european monetary union we find evidence for a level break in the cointegrating relationship moreover results show that i fiscal imbalances namely expected government debt to gdp differentials are the main long run drivers of sovereign spreads ii liquidity risks and cumulated inflation differentials have non negligible weights but iii all conclusions are ultimately connected to whether or not the sample of countries is composed of members of an optimal currency area oca in particular we establish i that results are overall driven by those countries not passing the oca test and ii that investors closely monitor and severely punish the deterioration of expected debt positions of those economies exhibiting significant gaps in competitiveness

stochastic trends and economic fluctuations in a small open economy in this paper we describe how restricted vector autoregressions can be employed to examine the sources of macroeconomic fluctuations we show how cointegration restrictions can be used to identify a var system with common stochastic trends subject to transitory and permanent changes in average growth and how we may investigate the system s responses to permanent shocks i e to innovations to the trends theoretical cointegration vectors are derived from a small open economy growth model for terms of trade real gdp real consumption and real investments applying these methods to swedish annual data 1875 1986 we find that permanent real supply shocks account for most of the fluctuations in gdp even in the short run