the asset market model of the balance of payments and the exchange rate a survey of empirical evidence abstract the purpose of this survey is to assemble and evaluate empirical evidence on the asset market model of the balance of payments and the exchange rate in section i the distinctive features of asset market models are compared with earlier keynesian models particular attention is directed to the assumptions and predictions of the monetary model which is a special and well known case of more general asset market models and thereby serves as a useful benchmark for discussion in sections ii and iii the empirical evidence under fixed and flexible exchange rates is evaluated the paper is concluded in section iv with an assessment of our current state of knowledge

the returns to schooling a selectivity bias approach with a continuous choice variable the essence of selection bias is that we do not observe nonoptimal choices this applies whether the choice variable is discrete or continuous this paper extends the selection bias methodology to the case where the choice variable is continuous and the choice set is ordered the leading practical application of this analysis is the schooling choice problem schooling is treated as a continuous choice variable and selectivity corrected rates of return are estimated the findings suggest selectivity is of considerable importance and support the comparative advantage hypothesis of willis and rosen 18

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

wages and labor management in african manufacturing using matched employer employee data on 10 african countries this paper examines the relationship beween wages worker supervision and labor productivity in manufacturing wages increase with rm size for both production workers and supervisors we develop a two tier model of supervision that can account for this stylized fact and we t the structural model to the data employee data is used to derive a rm speci c wage premium that is purged of the effect of worker observables we nd as trong effect of both supervision and wages on effort and hence on labor productivity labor management in sub saharan africa appears problematic with much higher supervisor to worker ratios than in morocco and a higher elasticity of effort with respect to supervision

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

short run independence of monetary policy under a pegged exchange rates system an econometric approach abstract in this paper we focus on the loss of independence of monetary policy due to the substitutability of domestic and foreign assets and estimate it for seven main industrial countries under a bretton woods period for that we develop a structural model of the economy which includes the behavior of the monetary authorities and we consider three different estimates of independence of monetary policy we find that when exchange rate expectations variables are left out of the equations then the three estimates widely diverge which emphasizes the error we can make if we just consider one type of estimate on the other hand when these variables are introduced in the model the three estimates indicate that a large amount of independence exists

the short run demand for transactions balances in australia a characteristic of much research in monetary economics in the last few years has been a preoccupation with the stability of the demand for money function as failure of stability undermines some of the central features of monetarism a recent summing up of this research has been that authors in various countries report that money demand equations estimated in the conventional way have broken down in recent times jonson 1978 p 29 with the evidence cited being adams and porter 1976 for australia artis and lewis 1979 for the united kingdom and goldfeld 1976 and enzler et al 1976 for the united states doubt must now exist about the validity of such a conclusion for the united kingdom as a result of studies by hendry 1980 and hendry and mizon 1978 and the proposition for the united states still seems an open question see laidler 1980 for a survey for australia however the above quotation seems to be the conventional wisdom with laidler citing australian experience as an example of instability in conventionally estimated demand functions and davis and lewis 1978 in their survey of australian monetary economics stating

exchange rate dynamics an empirical investigation this paper estimates a reduced form exchange rate equation whose estimates are used to address questions on exchange rate overshooting intermediate run exchange rate dynamics and long run proportionality relationships between relative money supplies and exchange rates based on swiss u s data from the period 1973 79 the major findings are that following a monetary shock there is short run exchange rate overshooting by a factor of about two and that subsequent exchange rate adjustments to a new long run equilibrium take longer than 2 years and exhibit nonmonotonic patterns

reserve flows and monetary autonomy under a fixed exchange rate the british experience under bretton woods abstractthis paper uses a stochastic intertemporal model to analyse reserve flows and monetary autonomy under a fixed exchange rate and applies the model to a study of the british experience under

the short run dynamics of prices and the balance of payments the purpose of this study is to analyze theoretically and empirically the short run behavior of prices and the balance of payments in a small open economy with a fixed exchange rate following the presentation of the theoretical framework the experience of mexico during 1950 73 is analyzed the model is based on what is known as the monetary approach to the balance of payments this approach as is frequently presented deals with long run equilibrium situations when all relative prices are fixed this long run equilibrium view was applied to test empirically the theory for several countries 2 using the assumption that there are no serious barriers to the international movement of capital and that all goods are traded 3 these assumptions imply that goods and capital markets are perfectly arbitraged and therefore that price levels and interest rates in all the countries always move together

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

on empirical exchange rate models what does a rejection of the symmetry restriction on short run interest rates mean abstract the purpose of this paper is to interpret the well documented rejection of reduced form symmetry restrictions on short run interest rates and to show that such a rejection implies a rejection of rational expectations re and or uncovered interest rate parity uip the paper also shows that if this rejection is due to failure of uip it cannot be explained by the presence of a standard risk premium in order to provide for well specified alternatives the paper explores the reduced form implications of imperfect capital mobility and a recent alternative to re called the theories consistent expectations framework

monetary independence under bretton woods perspectives from a stochastic maximizing model research based on the kouri porter 1974 model of international capital flows suggests that the central banks of nonreserve countries enjoyed considerable monetary independence during the bretton woods era this paper is a theoretical and empirical reassessment of this conclusion using a stochastic maximizing model it is shown that the existence of imperfect asset substitutability does not guarantee monetary control at the empirical level the estimated offset coefficients for four industrialized countries are consistent with zero monetary independence

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

disagreement in markets with matching and bargaining this paper develops an explanation of why bargainers often terminate negotiations in disagreement in spite of positive expected gains from continued negotiation the key to the analysis is a model which embeds bargaining activity within a market agents are continually faced with the choice between continuing to bargain with an existing partner or searching for a new partner bargainers may then terminate negotiations without an agreement in spite of positive expected gains from continued bargaining because seeking a new bargaining partner promises a higher return

the returns to vocational training and academic education evidence from tanzania in this paper we ask what can account for the continuing strong preference for academic education in africa where the level of development is so low and there are few wage jobs and which form of educational investment the academic or vocational is most profitable we argue that the answers to these questions are linked through the shape of the earnings function and the importance of firm effects high levels of academic education have far higher returns than those available either from vocational or lower levels of academic however at lower levels the vocational return can exceed the academic

unobserved heterogeneity and the relation between earnings and firm size evidence from two developing countries abstract large firms in ghana and kenya pay much higher wages than small ones we use panel data to show this is not the result of employing high ability individuals the size effect remains substantial with controls for individual fixed effects

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded