perfect foresight and equilibrium selection in symmetric potential games the equilibrium selection approach of matsui and matsuyama j econ theory65 1995 415 434 which is based on rational players who maximize their discounted future payoff is analyzed for symmetric two player games with a potential function it is shown that the maximizer of the potential function is the unique state that is absorbing and globally accessible for small discount rates journal of economic literatureclassification number c72

how important is the capacity of local governments for improvements in welfare evidence from decentralised uganda abstract decentralisation is often claimed to be effective for improvements in welfare and hence the reduction of poverty but empirical evidence is scarce this paper seeks to gain further insights into the relationship between decentralisation and welfare by investigating the role of local governments capacity for household consumption and school enrolment in uganda using household survey data it finds suggestive evidence that both household consumption and school enrolment are positively related with the level of capacity of district governments

mean reversion in real exchange rates evidence and implications for forecasting abstract the stationarity of real exchange rates over the recent flexible exchange rate period is an issue that has long bedeviled researchers in international finance using a constrained multivariate framework this paper provides the strongest evidence yet that real exchange rates were mean reverting over the 1973 93 period we also investigate shifts in long run real exchange rates which may be important for the purpose of forecasting out of sample forecasting shows that the random walk model is outperformed by a mean stationary model especially at long horizons in addition there are substantial forecasting benefits from using a multivariate approach

the european union currencies and the us dollar from post bretton woods to the euro abstract in this paper we study the evolution of the us dollar real exchange rate vis a vis the european union currencies in the floating post bretton woods era both before and after the birth of the euro in the first period we find that most of the persistence shown by this rate is due to the movements of the us dollar during the mid 1980s once these effects are isolated we can conclude that the us dollar real exchange rate exhibits stationarity with those currencies that are closely linked to the german mark however when we include the observations covering the period during which the euro was created we cannot reject the unit root null hypothesis for any currency

real exchange rates and time varying trade costs this paper re examines the empirical modeling of purchasing power parity ppp deviations in the presence of commodity market frictions first we show that a specific type of smooth transition models can closely approximate the functional form of the theoretical adjustment mechanism derived by dumas 1992 dynamic equilibrium and the real exchange rate in a spatially separated world review of financial studies 5 2153 180 for the case of constant as well as changing trade costs second we develop for the first time an empirical model of the real exchange rate which allows for changes in the degree of market integration by employing a long span of data on the dollar sterling real exchange rate and a micro founded proxy for trade frictions we provide novel evidence of a significant relationship between the persistence of the real exchange rate and the level of trade costs this finding suggests that both the difficulty of detecting ppp and the extend of rogoff s puzzle vary over time with the degree of trade restrictiveness finally we highlight policy repercussions of our results

parity reversion in real exchange rates during the post bretton woods period abstract a common view among recent studies on purchasing power parity is that the post bretton woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates is this really so the answer this study shows depends very much on the statistical test being used two efficient univariate unit root tests are applied to uncover parity reversion these tests require much shorter sample sizes than conventional tests to attain the same statistical power empirical results show that parity reversion can be unveiled over the modern float if an efficient unit root test is applied

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

the great appreciation the great depreciation and the purchasing power parity hypothesis abstract although there has been much recent work on purchasing power parity ppp neither univariate nor panel methods have produced strong rejections of unit roots in us dollar real exchange rates for industrialized countries during the post 1973 period we investigate the hypothesis that these non rejections can be explained by one episode the large appreciation and depreciation of the dollar in the 1980s by developing unit root tests which account for this event and maintain long run ppp using panel methods we can strongly reject the unit root null for those countries that adhere to the typical pattern of the dollar s rise and fall

forecasting real exchange rates abstract considerable evidence supports the view that real exchange rates do not have unit roots but rather show mean reversion this is the first paper to present systematic results on if and how this mean reversion is useful for forecasting real rates longer time horizons improve the performance of the estimated forecast models relative to the benchmark driftless random walks longer estimation periods particularly improve performance relative to the benchmark the forecasting ability in simple statistical models seems genuine but the models resolve only a small part of the uncertainty regarding the revolution of real exchange rates

speculative trading in mean reverting markets mean reversion is a feature largely recognized for the price processes of many financial securities and especially commodities in the literature there are examples where some simple speculative strategies before transaction costs were devised to earn excess returns from such price processes actually the gain opportunities of mean reversion must be corrected to account for transaction costs which may represent a major issue in this work we try to determine sufficient conditions for the parameters of a mean reverting price process as a function of transaction costs to allow a speculative trader to have positive expectations when deciding to take a position we estimate the mean reverting parameters for some commodities and correct them for transaction costs to assess whether the potential inefficiency is actually relevant for speculative purposes

mean variance portfolio selection of cointegrated assets abstract this paper considers the continuous time mean variance portfolio selection problem in a financial market in which asset prices are cointegrated the asset price dynamics are then postulated as the diffusion limit of the corresponding discrete time error correction model of cointegrated time series the problem is completely solved in the sense that solutions of the continuous time portfolio policy and the efficient frontier are obtained as explicit and closed form formulas the analytical results are applied to pairs trading using cointegration techniques numerical examples show that identifying a cointegrated pair with a high mean reversion rate can generate significant statistical arbitrage profits once the current state of the economy sufficiently departs from the long term equilibrium we propose an index to simultaneously measure the departure level of a cointegrated pair from equilibrium and the mean reversion speed based on the mean variance paradigm an empirical example is given to illustrate the use of the theory in practice

eoq models for a coordinated two level international supply chain considering imperfect items and environmental impact abstract for a two level supply chain models are presented to determine the optimal production shipment policy for items with imperfect quality in three different scenarios a both the vendor and the buyer are in the same country b the vendor and the buyer are in different countries where the stochastic behavior of the exchange rate between the two countries is modeled using a mean reverting process and c environmental impact is incorporated in determining the optimal production shipment policy by taking into account the fixed and variable carbon emission costs the objective is to minimize the total expected cost per unit time for each scenario considering equal shipment size the total expected cost per unit time is derived and the solution procedure is proposed numerical examples are presented and the results are discussed

real exchange rate behaviour evidence from black markets the behaviour of real exchange rates relative to the us dollar is examined using monthly data obtained from the black markets for foreign exchange of eight asian developing countries the data span is 31 years the black market real exchange rates do not show excess volatility during the recent float which is in sharp contrast to the results reported elsewhere unit root tests in heterogeneous panels and variance ratio tests confirm their stationarity thus we find support for ppp but not for the survivorship bias froot and rogoff 1995 there is little evidence of segmented trends issues raised by rogoff 1996 of whether ppp would hold across countries with differing growth experience and lothian and taylor 1996 of whether the degree of relative price volatility may bias results in favour of mean reverting real exchange rates are addressed copyright 2000 john wiley sons ltd

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

is purchasing power parity overvalued the purpose of this paper is to re examine the hypothesis of long run purchasing power parity among industrial countries under the current float using the panel data approach we propose a new finite sample panel data unit root test procedure that allows for a general serial correlation structure and arbitrary contemporaneous correlation in model innovations across countries this procedure is then applied to the recently developed panel data unit root tests of im pesaran and shin 1996 and of maddala and wu 1999 the test results show sufficient evidence against the unit root null for most samples by comparing our results with the existing ones in the literature we found that the method of assuming a restrictive serial correlation structure tends to weaken evidence against the unit root null

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null

real exchange rate behavior abstract using random simulations with artificial data with identical sample characteristics to the long sample exchange rate data employed by lothian and taylor lothian j r and taylor m p 1996 the recent float from the perspective of the past two centuries journal of political economy 104 488 509 we show that standard unit root tests have extremely low power over sample sizes corresponding to the recent float the probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans

mean reversion in g 10 nominal exchange rates according to conventional wisdom industrial country floating exchange rates contain unit roots sur tests on panels of monthly group of ten g 10 log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0 5 to 15 on average in out of sample forecasts mean reversion models beat random walks significantly in some forecast periods for monthly data the range of expected usd dem appreciation rates exceeds 15 per year in the mean reversion model mean reversion places strong restrictions on international models over the sample period the g 10 had to run monetary policies consistent with stable long run nominal rates

are real gdp levels nonstationary evidence from panel data tests potential nonstationarity of important macroeconomic variables and unit root tests are now a standard procedure in empirical analyses while there are many findings of unit roots in macroeconomic variables using the popular augmented dickey and fuller 1979 test this test has low power against near unit root alternatives recently panel data procedures have been proposed as an avenue to increased power this paper applies panel unit root tests to international real gdp and real gdp per capita data the results overwhelmingly indicate that international real gdp and real gdp per capita levels are nonstationary

on the equilibrium yen dollar rate this paper presents a definition of the long run equilibrium exchange rate that emphasizes the role of supply factors in addition to the more traditional price differential variables using this definition we estimate the long run equilibrium yen dollar rate during the period of 1973 87 this calculation demonstrates that supply factors are in fact very important determinants of the long run movement of the exchange rate despite the central role the exchange rates play in the economy economists seem to doubt their own ability to explain let alone predict exchange rate movements the reason is that in many cases structural exchange rate equations do not significantly outperform various other models that do not appeal to economic theory such as the random walk see for example richard meese and kenneth rogoff 1983 while we also share this pessimism concerning our ability to forecast exchange rates in the short run intradaily to monthly or quarterly we argue that it is possible to reasonably explain if not predict long run movements the long run equilibrium rate is most often thought to be determined by purchasing power parity ppp which tends to focus only on price differentials medium run divergences of the exchange rate from the long run equilibrium are therefore commonly identified with fluctuations in the inflation adjusted real exchange rate this paper demonstrates however that the simple ppp is unsatisfactory because it emphasizes only the inflation differential in the more elaborated theory of purchasing power parity of course the potential importance of supply side real factors as critical determinants of the exchange rate has been well recognized see for example john m keynes 1923 rudiger dornbusch stanley fischer and paul a samuelson 1977 alan stockman 1980 nevertheless in empirical applications and policy discussions these supply side real factors have been curiously ignored to our knowledge an exception is david hsieh 1982 the main point of this paper is to show that these supply side factors actually have been very important determinants of the yen dollar rate over the period of 1973 to 1987

stochastic stability in asymmetric binary choice coordination games abstract a recent literature in evolutionary game theory is devoted to the question of robust equilibrium selection under noisy best response dynamics in this paper we present a complete picture of equilibrium selection for asymmetric binary choice coordination games in the small noise limit we achieve this by transforming the stochastic stability analysis into an optimal control problem which can be solved analytically this approach allows us to obtain precise and clean equilibrium selection results for all canonical noisy best response dynamics which have been proposed so far in the literature among which we find the best response with mutations dynamics the logit dynamics and the probit dynamics

purchasing power parity and country characteristics evidence from panel data tests abstract we examine long run purchasing power parity ppp using panel data methods to test for unit roots in us dollar real exchange rates of 84 countries we find stronger evidence of ppp in countries more open to trade closer to the united states with lower inflation and moderate nominal exchange rate volatility and with similar economic growth rates as the united states we also show that ppp holds for panels of european and latin american countries but not for african and asian countries our findings demonstrate that country characteristics can help explain both adherence to and deviations from long run ppp

are urban poverty and undernutrition growing some newly assembled evidence abstract the population of the developing world is becoming more urban are poverty and undernutrition beginning to relocate to urban areas as well we use survey data on poverty from eight countries and on child undernutrition from 14 countries to address this question using data from the past 15 20 years we find that in a majority of countries the absolute number of poor and undernourished individuals living in urban areas has increased as has the share of overall poverty and undernourishment coming from urban areas given these trends and the current stock of knowledge as to the levels determinants and solutions to urban poverty and undernutrition we argue for more research on these issues

tests for symmetric and asymmetric nonlinear mean reversion in real exchange rates new tests based on smooth transition autoregressive models for mean reversion in time series of real exchange rates are proposed one test forces mean reversion to be symmetric about the integrated process central case while the other permits asymmetry the tests are applied to monthly series of seventeen real exchange rates against the u s dollar and fourteen against the deutsche mark they reveal stronger evidence against the unit root null hypothesis than does the usual dickey fuller test

evidence of purchasing power parity for the floating regime period abstract this paper investigates the ppp hypothesis within industrialized countries for the post bretton woods period via two panel unit root tests the df gls sur and the adf sur tests respectively developed by lopez a panel unit root with good power in small samples econometric reviews in press and levin et al 2002 unit root tests in panel data asymptotic and finite sample properties journal of econometrics 108 1 1 24 both approaches allow for data specific serial and contemporaneous correlation while both tests provide ppp evidence for the post 1973 period the more powerful df gls sur test demonstrates consistently stronger results especially for the 1973 1998 period

informal responses to crises of urban employment an investigation into the structure and relevance of small scale informal retailing in kaduna nigeria simon p b 1998 informal responses to crises of urban employment an investigation into the structure and relevance of small scale informal retailing in kaduna nigeria reg studies 32 547 557 micro enterprises in the informal sector of developing countries arguably possess potential and provide a niche in the employment generation process in the light of continuing economic decline this paper articulates the findings of a study that investigated the socio economic significance of small scale informal retailing in kaduna nigeria findings from this empirical study of informal retailing sustain the proposition that these activities can constitute a dependable source of urban employment income and livelihood the fullest extent of this relevance is however felt mostly by a relatively small category 20 of core informal enterprises in particular retailing practices evidence from this inquiry supports further a conclusion about the existence of a dual informal labour market external policy con

purchasing power parity and the euro area abstract this paper analyzes purchasing power parity ppp for the euro area we study the impact of the introduction of the euro in 1999 on the behavior of real exchange rates we test the ppp hypothesis for a panel of real exchange rates within the euro area over the period 1973 2003 our methodology exploits the cross sectional dependence across real exchange rates and allows for heterogeneity in the rates of mean reversion we present evidence in favor of ppp for the full panel of real exchange rates but we show that accounting for cross country differences within the euro area is essential the unit root hypothesis can be rejected for some real exchange rates but evidence for ppp is weak for others we also investigate ppp between the synthetic euro against several other major currencies over the period 1979 2003 we find support for the ppp hypothesis for the full panel of real exchange rates when the restriction of a common mean reversion coefficient is relaxed we reject the unit root hypothesis for the euro swiss franc rate only we conclude that the process of economic integration in europe has accelerated convergence toward ppp within the euro area

fictitious play property for games with identical interests abstract ann person game has identical interests if it is best response equivalent in mixed strategies to a game with identical payoff functions it is proved that every such game has the fictitious play property journal of economic literatureclassification numbers c72 c73

real exchange rate adjustment in european transition countries abstract in single equation tests real exchange rates show mean reversion for nine of 10 central and eastern european transition countries for the period january 1993 to december 2005 because of the shift from controlled to market economies and accompanying crises failed policy regimes and changes in exchange rate regimes unit root tests for transition countries often require allowance for structural changes accounting for structural breaks gives substantially faster mean reversion speeds than those found for major industrialized countries these fast adjustment speeds are plausible transition countries had perhaps 10 years to make unprecedented adjustments required for accession to the european union a number of papers have applied non linear models to the central and eastern european countries this paper investigates four non linear models and compares them with piece wise linear break models the break models appear superior in detecting mean reversion for the central and eastern european transition countries

structural change and poverty in africa a decomposition anakysis for cote d ivoire abstract this paper provides evidence that economic destabilization and the absence of managed structural change in an economy can be more harmful to the welfare of the poor than the process of adjustment itself evidence comes from four consecutive years of household survey data from cote d ivoire spanning both a period of adjustment and destabilization these constitute a unique data base in africa to assess the impact of structural change on the poor the analytic methodology used is that of static and dynamic decomposition of poverty measures along policy relevant dimensions

long memory and nonlinear mean reversion in japanese yen based real exchange rates abstract the extraordinary difficulty in uncovering parity reversion in yen based real exchange rates has often been ascribed to a missing trend variable this study identifies an alternative explanation and shows that the puzzling behavior of real yen rates may stem from long memory dynamics which undermine unit root tests in their ability to detect mean reversion the long memory findings are consistent with the long swings in yen exchange rates during the current float further analysis also reveals evidence of non monotonic reversion toward parity

productivity differentials the relative price of non tradables and real exchange rates abstract this paper reconciles the apparent contradiction between recent panel unit root tests of real exchange rates and the productivity differential model proposing an alternative view that explains the coexistence of such findings real exchange rates and the relative price of non tradables reflect the gradual adjustment of mean reverting and endogenously competing factors supply and demand shocks as well as traded goods arbitrage granger causality and variance decomposition results indicate substantial simultaneity and feedback effects between real exchange rates the relative price of non tradables and productivity differentials

on the failure of purchasing power parity for bilateral exchange rates after 1973 point estimates suggest mean reversion in real exchange rates however it still remains uncomfortable that models without any mean reversion are often compatible with data from the floating period studies with data over longer periods find mean reversion but at the cost of mixing in data from earlier exchange rate arrangements pooling the floating period data potentially mixes country pairs with and without mean reversion we examine tests for mean reversion for individual country pairs where greater power against close alternatives is gained through modeling other economic variables with the real exchange rate by increasing the power of the tests we find strong evidence of mean reversion

does the exchange rate follow a random walk a monte carlo study of four tests for a random walk abstract several authors have urged that real and nominal exchange rates follow a random walk conditions under which the exchange rate follows a random walk are reviewed in this paper many of these do not appear to hold therefore the empirical evidence presents a puzzle some evidence suggets the exchange rate follows a random walk while other evidence suggests the opposite should be true this paper attempts to reconcile the evidence it is argued that the tests for a random walk have low power monte carlo evidence on four tests for a random walk is presented that suppors this claim

option pricing with mean reversion and stochastic volatility many underlying assets of option contracts such as currencies commodities energy temperature and even some stocks exhibit both mean reversion and stochastic volatility this paper investigates the valuation of options when the underlying asset follows a mean reverting lognormal process with stochastic volatility a closed form solution is derived for european options by means of fourier transform the proposed model allows the option pricing formula to capture both the term structure of futures prices and the market implied volatility smile within a unified framework a bivariate trinomial lattice approach is introduced to value path dependent options with the proposed model numerical examples using european options american options and barrier options demonstrate the use of the model and the quality of the numerical scheme

why panel tests of purchasing power parity should allow for heterogeneous mean reversion recent studies of purchasing power parity ppp use panel tests that fail to take into account heterogeneity in the speed of mean reversion across real exchange rates in contrast to several other severe restrictions of panel models and tests of ppp the assumption of homogeneous mean reversion is still widely used and its consequences are virtually unexplored this paper analyzes the properties of homogeneous and heterogeneous panel unit root testing methodologies using monte carlo simulation we uncover important adverse properties of the panel approach that relies on homogeneous estimation and testing more specifically power functions are low and assume irregular shapes furthermore homogeneous estimates of the mean reversion parameters exhibit potentially large biases these properties can lead to misleading inferences on the validity of ppp our findings highlight the importance of allowing for heterogeneous estimation when testing for a unit root in panels of real exchange rates

the choice of numeraire currency in panel tests of purchasing power parity we investigate the implications of the choice of numeraire currency on panel tests of purchasing power parity under the current regime of flexible exchange rates by conducting panel unit root tests with twenty one different base currencies we show that the conditions necessary for numeraire irrelevancy are not supported empirically and that the choice of numeraire currency can and does matter for ppp the evidence of ppp is stronger for european than for non european base currencies distance between the countries and volatility of the exchange rates are the most important determinants of the results

increasing evidence of purchasing power parity over the current float we conduct unit root tests of real exchange rates with the united states dollar and the german mark as base currencies using samples of data which begin in 1973 and end between 1982 and 1996 we find that as the sample is extended the evidence of ppp strengthens with panel but not univariate methods because of the sharp rise and fall of the dollar in the early 1980s rejections of the unit root null do not monotonically increase with the sample size the evidence of ppp is uniformly stronger when the mark is used as the base currency

bounds tests of the theory of purchasing power parity abstract in this paper we test the absolute and relative purchasing power parity ppp hypotheses during the recent flexible exchange rate period using quarterly data for 21 oecd countries in doing so we use a new econometric technique developed by m h pesaran et al bounds testing approaches to the analysis of long run relationships university of cambridge department of applied economics working paper 9907 this approach is particularly interesting as it is capable of testing the existence of long run relations regardless of whether the underlying variables are stationary integrated or mutually cointegrated

panel unit root tests of purchasing power parity for price indices abstract this paper adopts four panel unit root tests to evaluate ppp over the floating period for six different price indices results generally support ppp albeit the speeds of adjustment differ considerably between price indices and test procedures the degree of contemporaneous and serial correlation as well as heterogeneity of the series in the panel affect stationarity and the speed of mean reversion

the re emergence of ppp in the 1990s abstract in this paper we investigate purchasing power parity ppp in a panel with 17 countries for the period 1972 through 1996 the novel feature of our panel methodology is that results are invariant to the choice of a benchmark on numeraire currency in the panel we allow individual country effects in the relation between prices and exchange rates in this way we can identify the currency pairs for which ppp holds or does not hold we conclude that there is substantive evidence for ppp although not to the same extent for every currency evidence in favor of ppp is strongest for many exchange rates relative to the dmark and weakest for the japanese yen for this currency a trend like variable like productivity growth is missing

poverty and basic needs fulfilment in africa during structural change evidence from cote d ivoire abstract much attention is given in the literature to the evolution of social indicators during periods of structural adjustment and economic reform this paper argues that these processes are not distribution neutral from the point of view of basic needs fulfilment and that hence the focus should not be on aggregate indicators but on the distribution of beneficiaries of social services and changes in this distribution evidence is presented for cote d ivoire during the second half of the 1980s a period of intense structural change which shows that the poorest absorbed the bulk of the decline in basic needs fulfilment as a result of structural change this was the case for almost all aspects of basic needs and occurred regardless of the overall trend in the social indicators

p dominance and equilibrium selection under perfect foresight dynamics this paper studies equilibrium selection based on a class of perfect foresight dynamics and relates it to the notion of p dominance a continuum of rational players are repeatedly and randomly matched to play a symmetric n n game there are frictions opportunities to revise actions follow independent poisson processes the dynamics has stationary states each of which corresponds to a nash equilibrium of the static game a strict nash equilibrium is linearly stable under the perfect foresight dynamics if independently of the current action distribution there exists a consistent belief that any player necessarily plays the nash equilibrium action at every revision opportunity it is shown that a strict nash equilibrium is linearly stable under the perfect foresight dynamics with a small degree of friction if and only if it is the p dominant equilibrium with p 1 2 it is also shown that if a strict nash equilibrium is the p dominant equilibrium with p 1 2 then it is uniquely absorbing and globally accessible for a small friction but not vice versa set valued stability concepts are introduced and their existence is shown journal of economic literature classication numbers c72 c73

mean variance asset liability management cointegrated assets and insurance liability abstract the cointegration of major financial markets around the globe is well evidenced with strong empirical support this paper considers the continuous time mean variance mv asset liability management alm problem for an insurer investing in an incomplete financial market with cointegrated assets the number of trading assets is allowed to be less than the number of brownian motions spanning the market the insurer also faces the risk of paying uncertain insurance claims during the investment period we assume that the cointegration market follows the diffusion limit of the error correction model for cointegrated time series using the markowitz 1952 mv portfolio criterion we consider the insurer s problem of minimizing variance in the terminal wealth given an expected terminal wealth subject to interim random liability payments following a compound poisson process we generalize the technique developed by lim 2005 to tackle this problem the particular structure of cointegration enables us to solve the alm problem completely in the sense that the solutions of the continuous time portfolio policy and efficient frontier are obtained as explicit and closed form formulas

some new stylized facts of floating exchange rates abstract this paper re examines real exchange rate behavior of oecd currencies under the current float using the more extensive dataset that an additional decade s worth of experience has made available what emerges is a new set of stylized facts which suggest that the problems of the current float were not as commonly believed generic to that system but in fact rather specific being largely confined to one sub period the early and mid 1980s and one currency the us dollar this dollar behavior ranks as one of the important puzzles of the past 25 years

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

the logit response dynamics we develop a characterization of stochastically stable states for the logit response learning dynamics in games with arbitraryspecification of revision opportunities the result allows us to show convergence to the set of nash equilibria in the class of best response potential games and the failure of the dynamics to select potential maximizers beyond the class of exact potential games we also study to which extent equilibrium selection is robust to the specificationof revision opportunities our techniques can be extended and applied to a wide class of learning dynamics in games

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

real exchange rates and switching regimes abstract we suggest that the real exchange rate between the major currencies in the post bretton woods period can be described by a stationary 2 state markov switching ar 1 model based on the forecast performance we find that this model outperforms two competing models where the real exchange rate is nonstationary we also find that the existence of different regimes as in the markov switching model is consistent with the common finding of unit roots in real exchange rates

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

the lucky few amidst economic decline distributional change in cote d ivoire as seen through panel data sets 1985 88 this article is an exploratory exercise in using panel data sets to investigate distributional change in cote d ivoire during the second half of the 1980s the panels made it possible to highlight and quantify mobility of the same households across poverty classes over time we found that there were a lucky few who improved their standard of living amid general decline detailed investigations revealed that the lucky few were fairly numerous and the probability of escaping poverty was quite high even for the very poorest these lucky few were widespread regionally although in some socio economic groupings the poor had higher chances of escaping poverty

long run purchasing power parity with short run data evidence with a null hypothesis of stationarity abstract we investigate long run purchasing power parity with data from the current floating exchange rate period by using tests where stationarity and cointegration are the null rather than the alternative hypotheses in most cases we cannot reject either the null hypothesis of stationarity of the real exchange rate or the null of cointegration between the nominal exchange rate and the domestic and foreign price levels this constitutes evidence of long run purchasing power parity because using the same tests we can reject the null of stationarity for the nominal exchange rate confirmation of the results is provided by a monte carlo study

what has happened to the urban population in cote d ivoire since the 1980s an analysis of monetary poverty and deprivation over 15 years of household data abstract this article investigates the evolution of urban poverty in its various dimensions in cote d ivoire since the 1980s the robustness of the results is checked using dominance criteria an econometric analysis of poverty complements the analysis the study shows that the dynamic of poverty in terms of existence conditions can significantly differ from that of monetary poverty as was the case in the 1980s monetary poverty increased strongly in the 1990s in spite of a return to sustained growth following the devaluation of the cfa franc poverty in terms of existence conditions rose less before the adjustment and even decreased afterward

threshold cointegration and causality relationship between energy use and growth in seven african countries abstract the paper investigates the long run and the causality relationship between energy consumption and economic growth for seven sub saharan african countries during the period 1970 2007 using the gregory and hansen 1996a 1996b testing approach to threshold cointegration we find that energy consumption is cointegrated with economic growth in cameroon cote d ivoire ghana nigeria and south africa moreover this test suggests that economic growth has a significant positive long run impact on energy consumption in these countries before 1988 and this effect becomes negative after 1988 in ghana and south africa furthermore causality tests suggest bidirectional causality between energy consumption and real gdp in cote d ivoire and unidirectional causality running from real gdp to energy usage in the case of congo and ghana

public expenditures in sub saharan africa during a period of economic reforms abstract public expenditure restraint is the most direct means of reducing balance of payments and budget deficits and is consequently a key aspect of macroeconomic adjustment programs the results of this study indicate a steady increase in total central government and social services spending during 1977 1989 in sub saharan africa the growth in population however contributed to an overall erosion in per capita expenditures while total government expenditures as a share of gdp have been stable during the past decade they have declined net of interest repayments which represent an increasingly large share of total spending an analysis of spending in the three years before and after donor financed adjustment programs began reveals no pattern of increase or decrease in real levels of total and social sector expenditures or in social sector spending as a share of the total expenditures elasticities of health and education spending with respect to gdp were found to be greater than unity in recent years indicating that as countries develop social spending will constitute a larger share of gdp

risk dominance and perfect foresight dynamics in n player games abstract in perfect foresight dynamics an action is linearly stable if expectation that people will always choose the action is self fulfilling a symmetric game is a pim game if an opponent s particular action maximizes the incentive of an action independently of the rest of the players this class includes supermodular games games with linear incentives and so forth we show that in pim games linear stability is equivalent to u dominance a generalization of risk dominance and that there is no path escaping a u dominant equilibrium existing results on n player coordination games games with linear incentives and two player games are obtained as corollaries

investigating the determinants of household welfare in cote d ivoire to predict the effect of economic policies on household welfare one should first understand which characteristics of households and of the localities in which they live enable them to raise their welfare levels this paper outlines a simple procedure for investigating the determinants of household welfare and demonstrates its use with recent data from cote d ivoire despite the relative simplicity much information is obtained from its use on cross sectional survey data results specific to cote d ivoire include high low returns to education in urban rural areas high benefits from cocoa land relative to coffee land a significant impact on economic welfare from the availability of medical services and no apparent benefits from agricultural extension services

on discrimination in auctions with endogenous entry abstract when entry is exogenous strong buyers should be discriminated against weak buyers to maximize revenues myerson 1981 when entry is endogenous so that entrants expected payoffs do not depend on the proposed mechanism optimal discrimination takes a completely different form the revenue maximizing equilibrium requires that there should be no discrimination with respect to entrants irrespective of their ex ante characteristics besides those buyers who always participate should be discriminated against entrants independently of their strength these predictions are independent of the equilibrium selection when the number of potential entrants grows large the optimality of first price auctions is also discussed jel d44 h57

searching for evidence of long run ppp from a post bretton woods panel separating the wheat from the chaff abstract this paper reexamines the issue of long run ppp using multiple panel tests in the framework of confirmatory analysis application of six panel tests under competing null hypotheses to the real exchange rates of 21 industrial countries yields seemingly contradictory evidence on the parity during the post bretton woods period regardless of numeraire currency four i 1 panel tests unanimously reject the null hypothesis in favor of long run ppp whereas two i 0 panel tests lend little support to the parity at conventional significance levels confirmatory analysis suggests that this puzzling result can be explained either by nonlinear dynamics of the real exchange rates or by a mixture of i 0 and i 1 series in the panel monte carlo experiments indicate that potential mix of i 0 and i 1 series is more relevant to the empirical finding the use of a sequential classification method sorts out six real exchange rates which exhibit most persistent deviations from long run equilibrium systematic behavior of these series can be characterized better by country specific factors than by observable macroeconomic variables

structural adjustment policies income distribution and poverty a review of the jamaican experience abstract although jamaica has had structural adjustment and standby loans from the world bank and the international monetary fund imf since 1977 the implementation of typical structural adjustment policies such as trade and financial liberalization privatization and labor market reform has for the most part occurred only since 1989 during 1989 1993 when the jamaican economy underwent the most drastic liberalization policies inequality and poverty declined although there were sharp jumps in both inequality and poverty in 1991 when financial liberalization occurred the overall decline in poverty is attributed to the strong performance of domestic agriculture and the increased inflow of remittances and seems unlikely to be sustained

the panel purchasing power parity puzzle does long run purchasing power parity ppp hold over the post 1973 floating exchange rate period panel unit root tests provide evidence of ppp that increases with the number of observations the strengthening of the evidence however is highly cyclical when the dollar appreciates at the end of the sample the evidence of ppp strengthens and when it depreciates the evidence weakens while these patterns cannot be explained by the specifications that are normally used to model real exchange rates the strengthening but not the cyclical pattern can be explained by a specifi cation that incorporates ppp restricted structural change

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

p dominance and perfect foresight dynamics abstract we investigate stability of p dominant equilibria under perfect foresight dynamics we show that a strict p dominant equilibrium with i p i 1 is globally accessible and absorbing in perfect foresight dynamics we also investigate robustness and extensions of this result we apply our proof method to games with u dominant equilibria and unanimity games

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

measuring pro poor growth in non income dimensions current concepts and measurement of pro poor growth is entirely focused on the income dimension of well being this neglects non income dimensions of poverty and the multidimensionality of poverty and wellbeing in this paper we introduce the multidimensionality of poverty into the measurement of pro poor growth measurement by applying the growth incidence curve to non income indicators we develop growth incidence curves and calculate the associated ravallion chen pro poor growth measures for a range of non income indicators such as education mortality vaccinations stunting and a multidimensional wellbeing measure and are thereby able to study improvements in these dimensions of well being at various points of the distribution of those indicators as well as at various points of the income distribution this way we can determine whether improvements in non income indicators were pro poor in an absolute or relative sense we illustrate this empirically for bolivia between 1989 and 1998 and find that growth was relatively pro poor in the non income dimension results for absolute improvements are less clear

the behaviour of relative prices in the european union a sectoral analysis using multivariate unit root test methods this paper investigates the purchasing power parity ppp hypothesis at the sectoral level across six european countries over the last 17 years evidence of mean reversion towards ppp is found for the relative prices of some sectors and countries mean reversion in relative prices is explained by cross country and cross sectoral characteristics such as the distance between countries nominal exchange rate volatility differences in gdp per capita non tariff barriers research and development advertising industrial concentration and tradeability of the products

efficient equilibrium selection in evolutionary games with random matching abstract this paper investigates the sensitivity of recent evolutionary models of learning to the specification of the matching mechanism we study a literally random matching mechanism combined with a process of strategy adjustment based on the realized average performance of each strategy in the key class of symmetric 2 2 coordination games the pareto efficient equilibrium per se is selected rather than the risk dominant equilibrium as the probability of experimentation or mutation goes to zero furthermore convergence to the equilibrium is relatively fast we extend these results for example to games of common interest journal of economic literature classification numbers c72 c73

model free evaluation of directional predictability in foreign exchange markets we examine directional predictability in foreign exchange markets using a model free statistical evaluation procedure based on a sample of foreign exchange spot rates and futures prices in six major currencies we document strong evidence that the directions of foreign exchange returns are predictable not only by the past history of foreign exchange returns but also the past history of interest rate differentials suggesting that the latter can be a useful predictor of the directions of future foreign exchange rates this evidence becomes stronger when the direction of larger changes is considered we further document that despite the weak conditional mean dynamics of foreign exchange returns directional predictability can be explained by strong dependence derived from higher order conditional moments such as the volatility skewness and kurtosis of past foreign exchange returns moreover the conditional mean dynamics of interest rate differentials contributes significantly to directional predictability we also examine the co movements between two foreign exchange rates particularly the co movements of joint large changes there exists strong evidence that the directions of joint changes are predictable using past foreign exchange returns and interest rate differentials furthermore both individual currency returns and interest rate differentials are also useful in predicting the directions of joint changes several sources can explain this directional predictability of joint changes including the level and volatility of underlying currency returns copyright 2007 john wiley sons ltd

nonlinear trends in real exchange rates a panel unit root test approach abstract we analyze the possibility of nonlinear trend stationarity as the alternative to unit roots in 23 oecd real exchange rates 1974 1998 by adding nonlinear time terms to the cips panel unit root test of pesaran 2007 we follow a thorough bootstrapping approach and propose a technique to adjust statistical significance for the use of multiple tests over several time trend orders the unit root null that all real exchange rates have unit roots is rejected at better than the 0 05 level bootstrapped results from a procedure of chortareas and kapetanios 2009 suggest that the hypothesis that all are stationary is reasonable we argue that nonlinear trend stationarity is the most likely alternative hypothesis for at least some of the real exchange rates because 1 the strongest cips rejection occurs when quadratic trends are specified 2 nonlinear time terms are statistically significant at the 0 10 level 3 the actual cips statistics are more consistent with cips sampling distributions from bootstrapped nonlinear trend stationary processes than from linear trend or mean stationary processes

rationalizable foresight dynamics abstract this paper proposes and studies the rationalizable foresight dynamics a normal form game is repeatedly played in a random matching fashion by a continuum of agents who make decisions at stochastic points in time a rationalizable foresight path is a feasible path of action distribution along which each agent takes an action that maximizes his expected discounted payoff against another path which is in turn a rationalizable foresight path we consider a set valued stability concept under this dynamics and compare it with the corresponding concept under the perfect foresight dynamics

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities

an approach to equilibrium selection abstract we consider equilibrium selection in 2 2 bimatrix both symmetric and asymetric games with two strict nash equilibria by embedding the static games in a dynamic random matching framework played by a continuum of anonymous agents unlike in evolutionary games the players are rational and maximize discounted payoffs but they are restricted to make a short run commitment when choosing actions this dynamic game with frictions has stationary states which correspond to the nash equilibria of the static game our selection is based on differential stability properties of the stationary states it is shown that for a small degree of friction a strict nash equilibrium becomes uniquely absorbing and globally accessible if and only if it is risk dominant harsanyi and selten a general theory of equilibrium selection in games mit press cambridge ma 1988 journal of economic literature classification numbers c72 and c73