black market exchange rate and the productivity bias hypothesis abstract previous studies that tested the productivity bias hypothesis employed the official nominal exchange rate in constructing the real rate hence in testing the productivity bias hypothesis in this paper we show that if official real exchange rate does not support the productivity bias hypothesis the real black market rate does this conjecture is tested by using data from chile colombia and costa rica

to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

price flexibility in developing countries evidence and implications using data for a sample of 50 developing countries the empirical investigation evaluates determinants and implications of asymmetric price flexibility price inflation is characterized by high flexibility to adjust towards full equilibrium further price inflation accelerates flexibly with unanticipated demand growth in both the upward and downward directions in most of the countries under investigation asymmetry indicates higher upward flexibility compared to downward flexibility in many countries aggregate uncertainty determines the degree of asymmetry such that price flexibility is higher with respect to expansionary demand shocks compared to contractionary shocks the higher the variability of aggregate demand across countries in contrast higher trend price inflation increases downward price flexibility across countries output variability decreases with both upward and downward price flexibility in the face of aggregate demand shocks a the views expressed in this article are those of the a

exchange rate sensitivity of u s trade flows evidence from industry data 1 introductionin an effort to boost employment a country could stimulate its exports and discourage its imports and thereby improve its trade balance one policy that has received a great deal of attention in the literature is currency devaluation by making exports cheaper and imports expensive devaluation is said to improve the trade balance the only condition required is that the sum of import and export demand price elasticities exceed unity that condition known as the marshall lerner condition is derived under the assumption of perfectly elastic supply of trade most previous studies that attempted to assess the marshall lerner condition relied on price elasticities that were obtained by estimating aggregate import and export demand functions these studies provided mixed conclusions as far as the effectiveness of devaluation or depreciation is concerned examples include houthakker and magee 1969 khan 1974 goldstein and khan 1976 1978 wilson and takacs 1979 haynes and stone 1983a 1983b warner and krienin 1983 bahmani oskooee 1986 1998 and bahmani oskooee and niroomand 1998 the mixed conclusion could be related to aggregation bias when aggregate trade data are employed in import and export demand functions significant price elasticity with one trading partner could be more than offset by an insignificant price elasticity with another trading partner yielding an insignificant price elasticity because of aggregation bias another body of the literature has emerged in recent years that concentrates on using trade data at the bilateral level examples in this latter group include rose and yellen 1989 cushman 1987 1990 summary 1989 marquez 1990 haynes hutchison and mikesell 1986 eaton 1994 bahmani oskooee and brooks 1999 nadenichek 2000 and bahmani oskooee and goswami 2004 except bahmani oskooee and goswami 2004 all other studies in this second group have estimated bilateral trade elasticities between the united states and her major trading partners and concluded that the real bilateral exchange rate is a significant determinant of bilateral trade balance at least in some cases bahmani oskooee and goswami 2004 who considered the bilateral trade flows between japan and her nine major trading partners found that in most cases japanese exports are not sensitive to the real bilateral exchange rate but her imports are these studies as well as those in the first group estimate price elasticities in demand under the assumption that supply is perfectly elastic and then evaluate the marshall lerner condition involving own price coefficients in demand thus evidence in these studies is limited because it assumes perfectly elastic supply of trade for both exports and imports although there is additional room to expand the literature in the second group by considering the experiences of countries other than the united states and japan in this paper we would like to open another avenue of research by investigating the impact of real depreciation of the dollar on imports and exports of 66 american industries a disaggregation by industry rather than by country disaggregation by industry will avoid problems associated with petroleum imports as does disaggregation by country rose and yellen 1989 1 for this purpose in section 2 we outline the import and export demand functions for each commodity group along with the estimation method in section 3 we present the empirical results section 4 provides our summary and conclusion data definitions and sources are cited in an appendix 2 the models and the methodin formulating any import and export demand function it is a common practice to relate the volume of imports and exports to a measure of income and relative prices the main purpose is to obtain estimates of import and export demand elasticities so that we can better judge the effectiveness of currency devaluation in increasing a country s inpayments and reducing outpayments

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

on analyzing the world distribution of income consideration of world inequality should cause reexamination of the key concepts underlying the welfare approach to measuring income inequality and its relation to measuring poverty this reexamination leads to exploration of a new measure that allows poverty and inequality to be considered in the same framework incorporates different approaches to measuring inequality and allows varied expressions of the cost of inequality applied to the world distribution of income for 1820 1992 the new measure provides different perspectives on the evolution of global inequality

purchasing power parity evidence from a new panel test this paper uses a recently suggested test for unit roots in panels of time series data maddala and wu oxford bulletin of economics and statistics 61 631 52 1999 to consider the purchasing power parity hypothesis the major innovation of this test is that it allows both the testing of unit root null using the adf test and the stationarity null using the kpss test it is found that the results are inconsistent suggesting that either alternative hypotheses to a unit root may need to be considered or that panel based testing in this particular context may be of limited value

real and nominal effective exchange rates for 22 ldcs 1971 1 1990 4 the international monetary fund constructs and publishes the real and nominal effective exchange rates mostly for developed but not less developed countries this paper employs a method of constructing real and nominal effective exchange rate from the literature to produce quarterly data over the 1971 1990 period for 22 developing nations as an application the stationarity of real effective exchange rates are determined to establish the empirical validity of the purchasing power parity theory ppp the results reveal that ppp fails to hold for most countries

new evidence on purchasing power parity from 17 oecd countries there is a large literature that investigates whether or not real exchange rates are stationary in an attempt to unravel support for purchasing power parity ppp at best the empirical results are mixed this paper applies a unit root test that allows for a simultaneous structural break in the intercept and slope shown by sen 2003 to minimize power distortions to examine ppp for 17 oecd countries our results on ppp are mixed when the real exchange rate is based on the us dollar evidence is found of ppp for only france portugal and denmark when the real exchange rate is based on the deutschmark we find evidence of ppp for austria belgium norway spain netherlands switzerland and denmark

purchasing power parity over two centuries trends and nonlinearity in two recent contributions lothian and taylor and cuddington and liang produced empirical evidence that annual data for the dollar sterling real exchange rate spanning two centuries exhibited a non linear deterministic trend this trend could be proxying harrod balassa samuelson effects lothian and taylor showed that a linear stationary autoregressive mode which embodied a cubic trend implied much faster mean reversion of the real exchange rate to shocks than a model that excluded the trend this article shows that both non linearity and a deterministic trend can be allowed for in a theoretically appealing manner and that the fitted models provide a parsimonious explanation of both the dollar sterling and franc sterling real exchange rates over the two centuries of data generalized impulse response function analysis of the models demonstrates that the speed of adjustment to shocks can be even faster when trends are considered

do nominal devaluations lead to real devaluations in ldcs abstract devaluation or depreciation of nominal exchange rate is a policy to boost exports however since any favorable effects of devaluation could be offset by its inflationary effects one must consider real devaluation this note investigates whether nominal devaluation leads to real devaluation by employing a relatively new method of cointegration and error correction modeling

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

ranking income distributions a large variety of policy questions involve choices between social states and a consequent ordering of the feasible alternatives when these social states are related to the levels of welfare experienced by individuals or households two central issues stand out in determining the relative desirability of different social outcomes one of these is the essentially positive exercise of achieving comparability between households with different characteristics such as composition or preferences operating in different environments for example facing different price structures the other concerns the normative judgments implicit in the evaluation of alternative allocations of resourcesthe emphasis placed on inequality between households and the extent to which greater inequality can be compensated by higher average living standards this paper focuses on the second of these issues and in doing so we abstract from the problem of household comparability by considering a population of n households identical in all respects except for their incomes the question of ordering social states then becomes one of ranking income distributions over a group of anonymous households or individuals borrowing the usual assumptions imposed on consumer preferences we may suppose that a social ordering of income distributions can be represented by a welfare function 2

correlated equilibrium as an expression of bayesian rationality if it is common knowledge that the players in a game are bayesian utility maximizers who treat uncertainty about other players actions like any other uncertainty then the outcome is necessarily a correlated equilibrium random strategies appear as an expression of each player s uncertainty about what the others will do not as the result of willful randomization use is made of the common prior assumption according to which differences in probability assessments by different individuals are due to the different information that they have where information may be interpreted broadly to include experience upbringing and genetic makeup copyright 1987 by the econometric society

real and nominal effective exchange rates for developing countries 1973 1 1997 3 the international monetary fund construct and publish real and nominal effective exchange rate data mostly for developed countries in this paper real and nominal effective rate data for developing countries are constructed application of the kpss test to real effective rate data reveals that ppp holds in most countries

unveiling the ethics behind inequality measurement dalton s contribution to economics this article assesses the importance of dalton s 1920 paper in the economic journal for subsequent developments in income distribution analysis

tenable strategy blocks and settled equilibria when people interact in familiar settings social conventions usually develop so that people tend to disregard alternatives outside the convention for rational players to usually restrict attention to a block of conventional strategies no player should prefer to deviate from the block when others are likely to act conventionally and rationally inside the block we explore two set valued concepts coarsely and finely tenable blocks that formalize this notion for finite normal form games we then identify settled equilibria which are nash equilibria with support in minimal tenable blocks for a generic class of normal form games our coarse and fine concepts are equivalent and yet they differ from standard solution concepts on open sets of games we demonstrate the nature and power of the solutions by way of examples settled equilibria are closely related to persistent equilibria but are strictly more selective on an open set of games with fine tenability we obtain invariance under the insertion of a subgame with a unique totally mixed payoff equivalent equilibrium a property that other related concepts have not satisfied

testing long run purchasing power parity with a bayesian unit root approach the experience of canada in the 1950s a test is made for long run purchasing power parity with canadian monthly and quarterly data from the 1950s using a bayesian unit root test discussed by koop but first suggested by zellner and siow results show that the hypothesis that the real exchange rate is a stationary process receives relatively low posterior probability put differently the probability is low that the nominal exchange rate and the national price levels have a stable long run relationship furthermore it is also found that there are structural differences between the sample period from october 1950 to may 1962 and the sample period from january 1952 to november 1960

evidence on the purchasing power parity in a panel of cities evidence is provided on the ppp hypothesis using a sample of 50 spanish cities for a long time period through the application of panel data unit root tests although results suggest non rejection of the ppp short run deviations as measured by half lives indicate that real factors might be causing a slow rate of convergence to a common price index even in highly integrated economies

relative undernutrition in puerto rico under alternative food assistance programmes in the early 1980s puerto rico experienced a conversion from the food stamp program fsp to the nutrition assistance program nap and a severe recession to compare relative undernutrition in puerto rico in 1977 and 1984 stochastic dominance methods and statistical inference procedures are applied to nutrient distributions to separate the effect of the recession from the effect of converting food coupons to cash benefits a multiple regression model of nutrient consumption is also estimated in the dominance comparisons every improvement in nutrition status between 1977 and 1984 is statistically significant at the lowest quintile while no case of worsening undernutrition is significant at the lowest quintile the multiple regression model provides some evidence that the conversion from food coupons to cash might have reduced nutrition status in the lowest quintile but a larger proportion of food assistance was allocated to low income households under the nap than under the fsp no evidence of signi

do exchange rates follow a random walk process in middle eastern countries abstract in this note we employ the kpss test in addition to the adf test to determine whether the real effective exchange rates in middle eastern countries follow a random walk process or they are stationary while in most cases the kpss test supported the stationary of the real effective rates thus the ppp the adf test did not the failure to support the ppp by the adf test is said to be due to its low power

purchasing power parity and the role of traded goods evidence from eu states in this paper the debate on purchasing power parity ppp is considered by providing results with disaggregated price data from european countries the disaggregation of the price data is important because it allows for the consideration of goods that are likely tradable e g fruits with goods that are not tradable e g hotel rooms the european focus is important because these results are able to shed light on the effect of the type of exchange rate regime member of exchange rate mechanism erm or not

long run purchasing power parity revisited a monte carlo simulation the existence of long run purchasing power parity ppp implies that a cointegration vector of nominal exchange rate domestic price and foreign price is expected regardless of using the engle granger two step method or johansen maximum likelihood approach however this paper has found conflicting results the engle granger technique tends to reject the long run ppp hypothesis whereas the johansen method is generally supportive of long run ppp via monte carlo simulations the present paper finds that the johansen approach has a bias toward supporting long run ppp especially under the circumstances in which the assumption of normally or and independently and identically distributed disturbance terms is violated

real and nominal effective exchange rates in mena countries 1970 2004 the main purposes of this article are 3 fold first we construct measures of real and nominal effective exchange rates for 14 middle east and north african countries over the 1970 2004 period second we test the validity of the purchasing power parity ppp by applying the adf and kpss tests to the real effective exchange rates finally we employ the bounds testing approach to cointegration and error correction modelling to show that nominal devaluation leads to real devaluation in the short run as well as in the long run in many of the countries

calculation and decomposition of income inequality in low and middle income countries a survey data analysis this article estimates income inequality in a sample of four low and middle income lmi countries namely albania nepal tajikistan and tanzania using the household survey data nepal living st

threshold cointegration and purchasing power parity in the pacific nations the paper uses a threshold cointegration methodology to explore the properties of long run purchasing power parity ppp in the pacific nations using japan and the usa as base countries it is shown that long run ppp holds for most asian countries but that the adjustment mechanism is asymmetric in contrast to symmetric error correction models it is found that asymmetric adjustments of nominal exchange rates play an important role in eliminating deviations from long run ppp

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

algorithmic rationality game theory with costly computation abstract we develop a general game theoretic framework for reasoning about strategic agents performing possibly costly computation in this framework many traditional game theoretic results such as the existence of a nash equilibrium no longer hold nevertheless we can use the framework to provide psychologically appealing explanations of observed behavior in well studied games such as finitely repeated prisoner s dilemma and rock paper scissors furthermore we provide natural conditions on games sufficient to guarantee that equilibria exist

ex ante inequality of opportunity in health decomposition and distributional analysis of biomarkers abstract we use a set of biomarkers to measure inequality of opportunity iop in the risk of major chronic conditions in the uk applying a direct ex ante iop approach we find that inequalities in biomarkers attributed to circumstances account for a non trivial part of the total variation for example observed circumstances account for 20 of the total inequalities in our composite measure of multi system health risk allostatic load we propose an extension to the decomposition of ex ante iop to complement the mean based approach analysing the contribution of circumstances across the quantiles of the biomarker distributions shapley decompositions show that for most of the biomarkers the percentage contribution of socioeconomic circumstances education and childhood socioeconomic status relative to differences attributable to age and gender increase towards the right tail of the biomarker distribution where health risks are more pronounced

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

nominal and real effective exchange rates of middle eastern countries and their trade performance indexes of real and nominal effective exchange rates that are published by the imf are mostly for industrial countries none of the middle eastern countries have received any attention on this regard this paper tries to close the gap by constructing such indexes for 11 middle eastern countries over 1971 i 1994 iv period as an application long run response of their trade balance to devaluation is also investigated

a memory based model of bounded rationality in order to investigate the impact of limited memory on human behavior i develop a model of memory grounded in psychological and biological research i assume that people take their memories as accurate and use them to make inferences the resulting model predicts both over and underreaction but provides enough structure to predict when each effect dominates i then use this framework to study the consumption decision the results match empirical work on consumption predictability as well as differences in the marginal propensity to consume from different income streams most importantly because it ties the extent of bias to a measurable aspect of the stochastic process being forecasted the model makes testable empirical predictions

on the measurement of poverty official statistics in the united states and the united kingdom show a rise in poverty between the 1970 s and the 1980 s but scepticism has been expressed with regard to these findings in particular the methods employed in the measurement of poverty have been the subject of criticism this paper re examines three basic issues in measuring poverty the choice of the poverty line the index of poverty and the relation between poverty and inequality one general theme running through the paper is that there is a diversity of judgments which enter the measurement of poverty and that it is necessary to recognize these explicitly in the procedures adopted there is likely to be disagreement about the choice of poverty line affecting both its level and its structure in this situation we may only be able to make comparisons and not to measure differences and the comparisons may lead only to a partial rather than a complete ordering the first section of the paper discusses the stochastic dominance conditions which allow such comparisons illustrating their application by reference to data for the united states the choice of poverty measure has been the subject of an extensive literature and a variety of measures have been proposed in the second section of the paper a different approach is suggested considering a class of measures satisfying certain general properties and seeking conditions under which all members of the class which includes many of those proposed give the same ranking those sceptical about measures of poverty often assert that poverty and inequality are being confounded the third section of the paper distinguishes four different viewpoints and relates them to theories of justice and views of social welfare

purchasing power parity an analysis based on the evolutionary spectrum the bulk of the literature on the empirical validation of the purchasing power parity ppp has been based on cointegration although on rare occasions band spectrum analysis has also been used the former is tied down to the use of notional time in the analysis of systems away from equilibrium and the latter is circumscribed by the slutzky yule effect both these drawbacks are sought to be remedied in the present paper which seeks to bring to bear upon the ppp a new approach derived from the concept of a time varying spectrum both absolute and relative versions of the doctrine are tested for ten advanced economies over the post 1973 period uniform rejection of the ppp occurs with the us as base but with centring on the dm the evidence seems to be supportive of the ppp in its relative version for three european countries

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

towards solving the ppp puzzle evidence from 113 countries several different approaches have been followed by researchers to test the validity of purchasing power parity ppp since the introduction of the unit root tests researchers have applied a battery of these tests to determine whether the real exchange rates are stationary if the answer is in the affirmative ppp is validated while application of the standard augmented dickey fuller test has not provided much support for ppp a test that incorporates nonlinearity in the rates has under both tests however the null of nonstationary is tested against the alternative of stationarity in this article when we switch the null with the alternative and apply kwiatkowski et al 1992 test we provide relatively more support for the theory getting closer and closer towards solving the ppp puzzle